Glossary
What is TAM, SAM and SOM?
The total revenue available if every possible customer bought your product. Usually paired with SAM and SOM to size a market.
Definition
TAM (total addressable market) is the total annual revenue you could earn if every possible customer for your product bought it. It's the outer limit of the opportunity. Teams usually pair it with SAM, the part they can actually serve, and SOM, the part they can realistically win in the next few years.
TAM vs SAM vs SOM
- TAM (total addressable market). Everyone who could ever buy this kind of product.
- SAM (serviceable available market). The slice your product, pricing, language and sales channels can actually reach today.
- SOM (serviceable obtainable market). The share of SAM you can realistically win in a set period, given competition and your capacity.
Top-down vs bottom-up sizing
Top-down starts with a big published number, such as an analyst's estimate of the industry, and takes percentages of it. It's fast, but it's easy to fool yourself, because "1% of a huge market" says nothing about who will actually buy.
Bottom-up counts the accounts that fit your ICP and multiplies by what each would pay per year. It takes longer, but it gives you a number you can check, and the same account list doubles as your prospecting list.
A worked example
Say you sell dispatch software to US HVAC companies for $3,000 a year, and a business database shows about 40,000 HVAC companies with at least five technicians. Bottom-up TAM is 40,000 × $3,000, or $120 million a year. If your product only integrates with tools used by half of them, SAM is $60 million. If you can realistically sign 800 customers in three years, SOM is $2.4 million a year. All of these figures are made up to show the math.
Why it matters for small teams
Investors ask for TAM, but for a small team the bottom-up account count is the useful part. It tells you whether your niche has enough companies to hit your goals, and how many you need to contact each month to get there.
Questions
What is a good TAM for a startup?
It depends on your goals. Venture investors usually want a market large enough to support a very big company, while a bootstrapped business can do well in a much smaller niche. What matters more is that your SOM is credible and you can name the accounts in it.
Is bottom-up or top-down TAM better?
Bottom-up is usually more trustworthy, because it's built from real account counts and prices you can check. Top-down is useful as a quick sanity check against published industry figures. Many teams calculate both and explain any big gap between them.
What is the difference between TAM and SAM?
TAM is everyone who could ever buy this type of product. SAM is the part of TAM your current product, pricing, geography and channels can actually serve. A US-only, English-only tool has a SAM much smaller than its global TAM.
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