Glossary
What are TAM, SAM and SOM?
TAM, SAM, SOM: TAM, SAM and SOM are three nested estimates of market size: the total demand for a product (TAM), the part your offer and channels can reach (SAM) and the share you can realistically win (SOM).
TAM, SAM and SOM size a market in three nested steps, from everyone who could buy to the share you can realistically win.
- TAM (total addressable market) is the revenue you would earn if every possible customer for your type of product bought from you.
- SAM (serviceable available market) is the part of the TAM that your product, price, region and sales channels can actually reach. Some sources write "serviceable addressable market"; it is the same figure.
- SOM (serviceable obtainable market) is the share of the SAM you can realistically win in a set period, given competition and your capacity to sell.
SOM is smaller than SAM, and SAM is smaller than TAM. Investors read the three numbers to judge whether the market is big enough and whether the plan for winning part of it is believable.
A worked example
A software company that automates month-end reconciliation sizes its market in three steps. The figures are invented, and each number comes with its scope:
| Scope | Size | |
|---|---|---|
| TAM | Finance automation spend, mid-market, EU and UK | €11.8bn |
| SAM | Reconciliation and close for firms with 50 to 500 staff | €3.4bn |
| SOM | Five-year target: 4,000 customers at €24,000 a year | €96m |
The SOM comes from a plan, not a percentage: 4,000 × €24,000 = €96m, which is 2.8% of the SAM.
How to size a market
- Define the unit. Write one sentence on who buys what, and count exactly that.
- Build bottom-up. Multiply the number of target customers by the yearly price per customer. Use a top-down figure from an industry report as a cross-check, not as the main number.
- Write the scope under each number: region, company size, product. Anyone should be able to challenge the line.
- Derive the SOM from your capacity to sell: sales reps, partners, conversion rates and the time it takes to win a deal.
- Name the source and the year for every count.
Market size on slides
Use one market slide with three numbers, the scope in words and a source line. Put the number you want remembered in the title, as in "A €3.4bn serviceable market in Europe alone". The pitch deck checklist helps you check the whole deck, and the pitch deck template includes a market slide.
Typical mistakes
- The "1% of the market" argument. "If we win just 1% of €11.8bn, that is €118m" says nothing about how you would win that 1%.
- A TAM that counts everyone. A product for firms with 50 to 500 staff does not address freelancers.
- SAM equal to TAM because "everyone could use it".
- Mixed units, with customers in one row and revenue in the next.
- No source or no year behind the counts.
The SOM only becomes a revenue plan when it meets unit economics: what a customer pays and what it costs to win one.
FAQ
Frequently asked questions
What is the difference between TAM, SAM and SOM?
TAM is the total demand for your type of product. SAM is the part of it that your product, region and channels can serve. SOM is the part of the SAM you can realistically win in a set period. Each figure is smaller than the one before.
Should I calculate TAM top-down or bottom-up?
Bottom-up is more convincing: the number of potential customers times the yearly price per customer. A top-down estimate, which starts from an industry report, works as a cross-check. A market size that is only a share of a large number leaves the reader guessing how you would win it.
How big should the SOM be?
There is no fixed share of the SAM. The SOM should follow from your plan: how many customers your sales channels can win in the period, times the price. If you cannot explain the SOM as a customer count, it is a guess.
Where do TAM, SAM and SOM go in a pitch deck?
On one market slide, usually after the problem and solution slides. Show the three numbers with their scope in words and add a source line.
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