What TAM, SAM and SOM mean
TAM, SAM and SOM are three market-size figures, each narrower than the last.
TAM, the total addressable market, is what the category would be worth annually if every possible buyer on earth bought. SAM, the serviceable addressable market, is the share of that your product could actually serve today, given your language, geography, segment and capability. SOM, the serviceable obtainable market, is what you could realistically win within a few years, given your channels, your conversion rate and your price.
The three are usually drawn as circles of similar size, which quietly implies the numbers are comparable. They are not. In any honest calculation the SOM is a sliver of the TAM, and drawing it to scale is the fastest way to understand why “we only need 1% of this market” is a sentence rather than a plan.
- TAM Total Addressable Market $4.2bn
If every possible buyer on earth bought, what would that be worth per year?
Basis: Every company with a product team, worldwide, at the price you charge.
Use it for: Showing the ceiling is not embarrassingly low. Almost nothing else.
- SAM Serviceable Addressable Market $610.0m
Of that, how much can your product actually serve today?
Basis: English-speaking, 10 to 200 staff, already using a tool in this category.
Use it for: Sanity-checking that the segment you chose is big enough to matter.
- SOM Serviceable Obtainable Market $18.3m
Of that, what can you realistically win in three years?
Basis: 3% of SAM, from a channel you have already tested, at your current conversion.
Use it for: Every decision you will actually make. This is the only one that constrains anything.
Why SOM is the only one that constrains anything
TAM answers a question investors ask to check the ceiling is not embarrassingly low. It has no bearing on what you build, who you sell to, what you charge or how you reach them.
SOM touches all four. It is derived from your actual channels and your actual conversion rate, so changing it means changing something real about the business. That is what makes it the number worth arguing about, and it is the one most decks skip past on the way to the big circle.
Top-down and bottom-up
There are two ways to arrive at these numbers and they are not equally defensible.
| Step | Value | Where it comes from |
|---|---|---|
| Companies in the segment | 61,000 | Filtered list, not an analyst estimate |
| Reachable through channels you have tested | 24,400 | 40%. The rest you have no route to |
| Convert at your observed rate | 1,220 | 5% of reachable, from your own funnel data |
| Annual contract value | $1,500 | Your actual price, not aspirational |
| Three-year obtainable revenue | $18.3M | The SOM |
- How
- Start from an analyst report and take a percentage.
- Produces
- A big number fast.
- Problem
- The percentage is invented, and the report defines the market differently from you. "1% of a $4bn market" is a sentence, not a plan.
- Verdict
- Use for context only.
- How
- Count real buyers, apply the conversion rate you have observed, multiply by your real price.
- Produces
- A smaller number you can defend line by line.
- Problem
- Slower, and it usually reveals the market is smaller than hoped.
- Verdict
- Use for every decision.
The tell is whether anyone can attack a specific line. “3% of a $4bn market” offers nothing to disagree with, which feels like strength and is the opposite. A bottom-up figure invites someone to say your conversion assumption is optimistic, and that conversation is worth having before you build.
What these numbers are not
They are not a forecast. A SOM is a ceiling on what you could obtain, not a projection of what you will, and treating it as revenue guidance is how three-year plans end up disconnected from the first year.
They are not static. Each is a function of your price, your segment and your reach, all of which you change deliberately. Doubling your price halves the number of buyers who qualify and may raise or lower the SOM depending on which effect dominates.
And they are not a substitute for demand. A market can be genuinely large and contain nobody willing to switch this year.
On which subject, a number about market scoring generally, and about ours in particular. ShipFit grades market opportunity out of 100. Across 520 ideas it has never once told anyone to stop.
Across 520 ideas, an AI market-research engine gave a mean opportunity score of 83.9 out of 100 and killed exactly none of them.
- Mean score
- 83.9 / 100
- Median score
- 82
- Scored below 50
- 7 of 520 1.3%
- Told to kill the idea
- across 3,151 completed runs 0
Sample: n = 520 ideas with a numeric market score
What it does not say: This is a statement about ShipFit’s model, not about the market. A kill verdict exists in the code and has never once been assigned.
This one is unflattering to us, and we are publishing it anyway. A tool that only reports the numbers making it look good is not reporting numbers.
- A big TAM is treated as evidence of opportunity
The total addressable market is mostly a function of how broadly you define the category. Widen the definition and the number grows without anything about your business changing.
Instead: Quote TAM once for context, then argue only about SOM. If the SOM is small, a large TAM does not rescue it.
- The percentage is invented and then defended
"We only need 1%" assumes market share arrives in proportion to effort. It does not. Share is won segment by segment through a specific channel, and 1% of a market you cannot reach is zero.
Instead: Build up from a countable list of buyers and an observed conversion rate.
- The numbers are treated as facts rather than as functions
All three depend on your price, your segment definition and your reachable channels. Change any of the three and all the numbers move, which is why a market size quoted without those assumptions is unreadable.
Instead: State the assumptions next to the number, every time. A figure without them cannot be checked.
- Market size is confused with demand
A large, well-defined market can be full of people who are content with what they have. Size measures how many could buy, not how many are looking.
Instead: Confirm the problem is live with buyer interviews before sizing anything.
How ShipFit uses this
ShipFit sizes the market bottom-up at Stage 1 (Worth Building?), from your defined buyer rather than from an analyst report, and carries the SOM forward into pricing at Stage 6 so the price and the obtainable revenue are checked against each other rather than decided separately.
The TAM SAM SOM calculator runs the same arithmetic on your own numbers.
Further reading
- TAM SAM SOM calculator. The bottom-up calculation above, on your figures.
- The Mom Test. How to confirm the demand a market size cannot measure.
- Van Westendorp. The price that every one of these numbers depends on.
- Blue Ocean Strategy. What to do when the market you sized is thoroughly contested.
- ARR / MRR. The revenue the SOM is a ceiling on.
Frequently asked questions
What is the difference between TAM, SAM and SOM?
How do you calculate SOM bottom-up?
Why is 'we only need 1% of the market' a bad argument?
Which number should I put in my pitch deck?
Is market size the same as demand?
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