TAM (Total Addressable Market) is the total market demand for a product or service. SAM (Serviceable Addressable Market) is the portion of TAM you can realistically target. SOM (Serviceable Obtainable Market) is the share you can capture given competition and resources. These metrics are used in consulting, PE due diligence, and strategic planning.

How do you calculate TAM SAM SOM?

TAM is calculated using top-down (industry reports) or bottom-up (unit economics × total customers) approaches. SAM is TAM filtered by geographic, segment, or capability constraints. SOM represents realistic capture based on competitive dynamics, go-to-market strategy, and available resources.

Who uses TAM SAM SOM analysis?

TAM SAM SOM is used by management consultants (McKinsey, BCG, Bain), private equity firms for due diligence, corporate strategy teams for market entry analysis, and investors evaluating opportunities. It's a standard framework for quantifying market opportunity.

What is the difference between top-down and bottom-up market sizing?

Top-down starts with total industry size from reports and narrows down. Bottom-up builds from unit economics (customers × price). Consulting firms and PE investors prefer bottom-up because it demonstrates understanding of customer segments and pricing. Best practice is to triangulate using both methods.

What is TAM (Total Addressable Market)?

TAM represents the total market demand for a product or service assuming 100% market share. It's the theoretical maximum revenue opportunity. For example, the global CRM software market (~$80B) would be the TAM for a new CRM product. TAM establishes the ceiling of the opportunity.

What is SAM (Serviceable Addressable Market)?

SAM is the portion of TAM that can realistically be served given business model constraints, geography, and capabilities. For a CRM targeting SMBs in North America only, SAM would be the North American SMB CRM market. SAM demonstrates focus and realistic targeting.

What is SOM (Serviceable Obtainable Market)?

SOM is the portion of SAM that can realistically be captured given competitive dynamics, resources, and go-to-market capabilities. It typically represents a 3-5 year capture target. SOM shows understanding of competitive positioning and execution capacity.

How do I calculate TAM using top-down vs bottom-up?

Top-down starts with industry reports (e.g., 'The CRM market is $80B') and applies filters. Bottom-up multiplies unit economics by total potential customers (e.g., '10M SMBs × $1,000/year = $10B'). Consulting firms and PE investors prefer bottom-up because it demonstrates understanding of customer segments and pricing. Best practice: triangulate using both.

Who uses TAM SAM SOM analysis?

TAM SAM SOM is standard at management consulting firms (McKinsey, BCG, Bain) for market entry and growth strategy. Private equity uses it for investment due diligence. Corporate strategy teams use it for new market evaluation. Investors use it to assess market opportunity in pitch decks.

What is a reasonable SOM percentage?

SOM depends on market maturity and competitive intensity. In fragmented markets, 5-15% of SAM may be achievable. In concentrated markets with strong incumbents, 1-5% is more realistic. The key is building bottom-up from sales capacity and realistic win rates, not top-down aspiration.

How do I present TAM SAM SOM in PowerPoint?

The most common visualization is nested circles (TAM largest, SOM smallest) or a funnel chart. Include dollar values and methodology notes. For consulting deliverables, show both top-down and bottom-up with reconciliation. Use Deckary's chart tools to create professional market sizing visuals.

What are common TAM SAM SOM mistakes?

Common mistakes include: (1) Conflating TAM and SAM, (2) Using only top-down without bottom-up validation, (3) Not explaining methodology and assumptions, (4) Ignoring competitive dynamics in SOM, (5) Cherry-picking favorable data sources. Experienced reviewers spot unsupported claims immediately.

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TAM SAM SOM Calculator

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Calculate Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market for strategy, due diligence, and investment analysis.

Total Addressable Market (TAM)

Enter your total market size in dollars

SAM as % of TAM

What portion of TAM can you serve? (typical: 10-30%)

SOM as % of SAM

What can you realistically capture? (typical: 1-5% early stage)

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What is TAM SAM SOM?

TAM SAM SOM is the standard framework for market sizing. Consultants use it for market entry analysis, PE firms for due diligence, and corporate strategy teams for growth planning. Here's what each term means:

TAM

Total Addressable Market

The total market demand if you had 100% share. The theoretical maximum. Shows the size of the opportunity.

SAM

Serviceable Addressable Market

The portion of TAM your product can serve. Filtered by geography, segment, or capability. Shows focus.

SOM

Serviceable Obtainable Market

What you can realistically capture in 1-5 years. Accounts for competition. Shows credibility.

Pro Tip: Bottom-Up vs Top-Down

Investors prefer bottom-up calculations (# of customers × price per customer) over top-down (industry reports). Bottom-up shows you understand your unit economics. Best practice: show both and explain the difference.

How to Calculate Each Metric

Step-by-step approaches for credible market sizing

Calculating TAM

Top-down: Use industry reports (Gartner, IBISWorld, Statista). "The global CRM market is $80B."

Bottom-up: Total potential customers × Annual contract value. "30M SMBs × $500/year = $15B."

Value-theory: Total value created by solving the problem. Useful for new categories.

Calculating SAM

Geographic filter: "We're launching in North America first" → 40% of global TAM.

Segment filter: "We serve mid-market only (50-500 employees)" → 25% of TAM.

Capability filter: "Our product only works for e-commerce" → 15% of TAM.

Multiply filters together if they're independent.

Calculating SOM

Market entry: 1-5% of SAM is realistic for new market entrants in years 1-3.

Established player: 5-15% of SAM with proven go-to-market and brand.

Market leader: 15-30% of SAM with category leadership and scale.

Base SOM on sales capacity and realistic win rates, not aspirational targets.

Common Market Sizing Mistakes That Kill Credibility

VCs and PE investors see these errors constantly. Avoid them to build trust in your analysis.

Claiming Your Customer's Revenue as TAM

If you sell software to grocery stores, your TAM is not $765B in grocery sales—it's what grocery stores spend on software like yours. Your TAM is what you can earn, not what your customers earn.

Top-Down Only Without Bottom-Up Validation

"Gartner says the market is $50B" is a starting point, not a conclusion. Investors want to see bottom-up math: (# customers × ACV) that triangulates with top-down. If they don't match, explain why.

"We Just Need 1% of a Giant Market"

This signals you haven't done the work. Investors want to see how you'll get that 1%: sales capacity, CAC, win rates, competitive dynamics. Build SOM from the bottom up, not as a percentage of TAM.

Conflating TAM and SAM

If you only sell in North America to mid-market, don't use global enterprise numbers. Investors will ask: "What's the SAM for your actual go-to-market?" If you can't answer, you haven't done the segmentation.

No Source Attribution

Every number needs a source: Gartner, IBISWorld, Census data, your own customer data. Unsourced claims are red flags. Footnote your methodology—it shows rigor and builds trust.

The Credibility Test

Before presenting, ask: "Could a skeptical analyst poke holes in this?" If yes, address it proactively. Show conservative, base, and aggressive scenarios. Investors respect founders who acknowledge uncertainty rather than those who present optimistic-only projections.

Related Resources

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