TAM SAM SOM Explained: How to Calculate Your Market Size

One of the most powerful tools to justify the development of a new product—or even secure investment from a VC—is to do a TAM, SAM, SOM calculation.

You may be wondering why this is so important. Well, when you do this, you're justifying to the person who has to approve your investment or new product idea that you've actually looked into the market. You've done the research and you understand the different customer personas and types of companies you're going to be targeting. It gives you a deeper understanding of what the opportunity really is and who you should be addressing first to be successful.

Let’s start by defining what TAM, SAM, and SOM are.

Understanding the Definitions 

1. Total Addressable Market (TAM) 

This is the entire market out there that your product could potentially reach, without taking into consideration any competitors. This isn't a market you can actually address—no product can do that—but it gives you a rough idea of the size of the opportunity.

For example, if you're building a tool for product managers, the total number of product managers globally is about 1 million. If we put a monetary value on that and say our product's annual contract value is $100 per year, the total addressable market would be $100 million per year.

2. Serviceable Addressable Market (SAM) 

The SAM is the realistic size of the market that your product could actually serve. This is the market size you could potentially reach over time. Here, you'll add criteria to filter out some of the people in the TAM.

Going back to our example, let's say our tool is only for small and medium-sized companies with less than 500 employees. According to a Product Plan report, 59% of product managers work in these companies. This means our SAM is $59 million per year.

3. Serviceable Obtainable Market (SOM) 

This is the most realistic market size—the portion of the market you are going to be able to capture with your current operational setup. I like to think of the SAM as your long-term vision and the SOM as your short-term vision. It's about what you can realistically capture today.

If we look at factors like which countries we can sell and support in, what languages we support, and what the competitive landscape looks like, we might find that we could only capture 1-2% of the SAM. This means our SOM would be between $590,000 and $1.18 million per year. This gives you a much better idea of the market you can realistically look into, especially when you consider how long it takes to ramp up sales and promotion efforts.

Top-Down vs. Bottom-Up Research 

I want to quickly mention the two ways to do these calculations.

• Top-down: This approach is when you start with the big number (the TAM) and simply take a small percentage of it. I've seen it in many places, and I don't like it because it oversimplifies everything. It just tries to put a quick number out there that looks nice, without doing the work to understand who you're actually targeting.

• Bottom-up: This is where you start with the market you can realistically support and work your way up. You have a much better understanding of your capabilities, your target personas, and what you need to do to address those market needs. In my experience, this approach is always better because it gives you a far more accurate understanding of the problem.

Key Considerations 

• It's an Estimate: Remember that these are just estimates. They are often best-case guesses, and you might be far off, especially with a top-down approach. But if you do the work, you at least know how to move forward.

• Decision Makers Care About the Story: Decision-makers are not just caught up by the number. A number can be very flashy, but they want to know if you understand the opportunity. They want to see that you've done the work, that you've niched down, and that you have a plan to get to market.

• Avoid Analysis Paralysis: This work can be a lengthy project. It's easy to get stuck in "analysis paralysis." The goal is not perfection. The goal is to give you a strong understanding of the market opportunity so you can make the most informed decision possible. You can always use quick tests like surveys or MVPs to validate your idea without spending too much time on the research.

The goal is to give you the understanding of the market opportunity and the market status at this point to make the most informed decision.

Clarify where and who your products are for 

This kind of strategic thinking is not just about a single product idea. It's about a consistent way of working that helps your company make better decisions.

Ready to stop building features and start building business impact? Download my Free TAM SAM SOM Guide to get started and justify your next big idea with confidence.


You can watch a video version of this topic. You can find it here: