TAM SAM SOM

A huge total can hide a tiny realistic market. Founders who quote only the top number plan as if all of it were available. TAM answers whether the category is worth being in. SAM answers how much of it is within reach. SOM forces the honest question of what you can win soon, and it is the figure that should set targets, hiring and spend. Investors also tend to distrust a pitch that stops at TAM.

• Calculate bottom up where you can. Count the real number of companies or people that fit, and multiply by what each would pay in a year. Top-down figures lifted from a research report are easy to inflate.
• Cut TAM to SAM by removing anything outside your product, region, language or buyer type.
• Cut SAM to SOM using real capacity: sales headcount, channel reach, close rates and sales cycle length.
• Revisit all three whenever the product or target market changes. SAM and SOM move even if TAM does not.
• Use SOM, not TAM, for this year's goals.

The three layers sit inside each other like nested boxes.

• TAM, the total addressable market, is the whole demand for a kind of product if every possible buyer bought.
• SAM, the serviceable addressable market, is the part of that you can serve with your current product, geography, language and price.
• SOM, the serviceable obtainable market, is the share of SAM you can realistically win in the next year or two with the team and channels you actually have.

• Quoting only the TAM. A large total with no route to it tells an investor or a team nothing. Show all three layers.
• The "1 percent of a huge market" argument. Winning a small share of a large number is not a plan. Build SOM from capacity: salespeople, leads and close rates.
• Top-down only. A report's headline figure is easy to inflate. Check it with a bottom-up count of real companies multiplied by realistic annual revenue.
• Counting buyers who cannot buy. If your product does not support their country, language, size or tools, they are outside SAM.
• Mixing the unit. Do not combine number of companies in one layer with revenue in another. Pick one unit and keep it.
• Never updating. SAM and SOM change with product, pricing and team. Recalculate when they do.