Your pitch deck claims a "$500 billion market opportunity." Investors nod politely and ask the question that kills most pitches: "That's interesting. But what can you realistically capture in three years?"
Silence.
Citing total market size without understanding your serviceable and obtainable portions isn't strategy—it's fantasy. Every market analysis that stops at "this is a huge market" has failed before it started.
The TAM-SAM-SOM framework forces you to move from theoretical market size to realistic revenue targets by breaking market opportunity into three specific layers, each more constrained and actionable than the last.
What TAM-SAM-SOM Means
The framework defines market opportunity at three levels of specificity:
Total Addressable Market (TAM): The total revenue opportunity if you achieved 100% market share across everyone who could possibly use any solution to the problem you solve. This is the theoretical maximum.
Serviceable Addressable Market (SAM): The portion of TAM you can serve with your current product, business model, and geographic reach. This accounts for your actual capabilities and constraints.
Serviceable Obtainable Market (SOM): The portion of SAM you can realistically capture in a specific timeframe given your competition, resources, and go-to-market capabilities.
The progression matters. TAM tells investors the problem is big enough to matter. SAM shows you're realistic about what you can serve. SOM demonstrates you understand competitive dynamics and have a credible path to revenue.
Calculating Total Addressable Market (TAM)
TAM represents the full market size if you had unlimited resources, perfect distribution, and no competition. Two approaches calculate it.
Top-down approach: Start with total market research from firms like Gartner, Forrester, or IDC. If the "project management software market" is $8 billion annually, that's your TAM starting point.
This approach is fast and leverages existing research. The downside: these estimates often include products different from yours, use definitions that don't match your offering, or aggregate markets that aren't really comparable.
Bottom-up approach: Calculate based on target customer counts and potential spend. How many companies or people could use your solution? What would they pay annually?
Example: If there are 50,000 mid-market companies in North America, and each could spend $50,000 annually on your category, your TAM is $2.5 billion.
This approach is more accurate because it's grounded in your specific offering. The downside: it requires more research to get reliable numbers.
Calculating Serviceable Addressable Market (SAM)
SAM narrows TAM to the portion you can actually serve today given your product capabilities, business model, and operational constraints.
Apply these filters to your TAM:
Geographic constraints: If your TAM includes global opportunity but you only operate in North America, your SAM is North American opportunity only.
Segment constraints: If your product is built for enterprises but your TAM included SMB, remove SMB from SAM. You can't serve them with your current product.
Business model constraints: If your product is self-serve SaaS but TAM included customers needing extensive customization and professional services you don't offer, exclude them.
Regulatory or compliance constraints: If portions of your TAM require compliance certifications you don't have (HIPAA, SOC2, FedRAMP), exclude those until you achieve certification.
Integration or technical constraints: If customers need integrations with systems you don't support, they're not in your SAM yet.
Example: Your TAM is $5 billion (all project management software globally). But you only serve English-speaking markets (60% of TAM), only have features for software development teams (30% of TAM), and only offer self-serve purchases (40% of that). Your SAM is $5B × 0.6 × 0.3 × 0.4 = $360M.
SAM is what you could achieve if you captured every possible customer you can currently serve. It's still ambitious, but grounded in your actual capabilities.
Calculating Serviceable Obtainable Market (SOM)
SOM is the reality check. This is what you can actually capture in a specific timeframe given competitive dynamics, your brand strength, sales capacity, and marketing resources.
Factors that constrain SOM:
Competition: If you're entering a market with entrenched competitors, you're not capturing 50% of SAM in year one. Maybe you capture 2-5% if you're excellent and well-funded.
Sales capacity: If your SAM is $360M but you have three sales reps who can each close $1M annually, your SOM is constrained by sales capacity. You can't sell more than your team can deliver.
Brand awareness: New brands have low consideration. Even if your product is superior, most buyers won't know you exist. SOM must account for awareness constraints.
Customer acquisition cost: If your average contract value is $10K but CAC is $8K, you can't profitably capture much market. Economics constrain SOM.
Implementation capacity: If closing deals requires custom implementation and you can only implement 50 customers annually, that caps SOM regardless of sales pipeline.
Calculate SOM bottom-up based on actual go-to-market capacity:
Number of sales reps × average deals closed per rep per year × average contract value = Year 1 SOM
Or: Marketing-generated opportunities × sales conversion rate × average contract value = Year 1 SOM
Your 3-year SOM should account for planned team growth, improving conversion rates, and increasing contract values. But stay realistic. Tripling sales capacity doesn't triple SOM if the market won't support that growth rate.
How Product Marketers Use TAM-SAM-SOM
This framework drives several critical product marketing decisions.
Market prioritization: If SAM in North America is $300M and SAM in Europe is $50M, focus North American resources first. Enter Europe only after proving dominance in your core market.
Positioning: Your positioning should emphasize where your SAM is strongest. If you serve enterprises well but SMB poorly, position as the enterprise solution rather than trying to be everything to everyone.
Sales forecasting: SOM provides realistic revenue targets. If your SOM is $5M in year one, don't promise $20M to your board. Build bottoms-up forecasts grounded in actual capacity.
Resource allocation: If increasing SAM requires building compliance features to enter healthcare, calculate whether healthcare SAM is large enough to justify that investment.
Investor communication: Show investors you understand market dynamics. Present TAM to show opportunity size, SAM to show focus, and SOM to demonstrate realistic planning and capital efficiency.
Common Mistakes in Market Sizing
Using TAM as if it's achievable: Your pitch deck shouldn't say "targeting $50B market" when that's TAM and your realistic SOM is $5M year one. Investors need to see you understand the difference.
Ignoring competition in SOM: Calculating SOM as "we'll capture 30% of SAM" without accounting for entrenched competitors, customer switching costs, or sales cycle length is naive.
Not updating as you evolve: Your SAM expands as you add features, enter new geographies, or achieve new certifications. Recalculate quarterly as capabilities change.
One-size-fits-all approach: Different segments have different TAM/SAM/SOM. Healthcare might have large TAM but small SOM due to regulatory barriers. Technology might have smaller TAM but larger SOM due to faster buying cycles.
Forgetting about time: SOM should have a timeframe: "Year 1 SOM is $3M, Year 3 SOM is $25M." Market capture takes time. Show the progression.
Making up numbers: Bottom-up market sizing requires real research. How many target customers exist? What do they currently spend? What's realistic penetration? Guessing these numbers invalidates the entire analysis.
Expanding Your Markets Over Time
Smart companies systematically expand TAM → SAM → SOM over time.
Year 1: Focus on core segment where product-market fit is strongest. Narrow SAM, realistic SOM.
Year 2: Expand SAM by adding features that enable serving adjacent segments or geographies. SOM grows as you prove ability to capture core segment.
Year 3: Enter new segments or geographies, expanding SAM further. SOM in original segment continues growing as you capture more share.
This staged expansion shows discipline. You're not trying to boil the ocean. You're systematically proving you can capture markets before expanding to new ones.
Data Sources for Market Sizing
Finding reliable data is the hardest part of TAM-SAM-SOM analysis.
Industry analyst reports: Gartner, Forrester, IDC publish market size estimates for major categories. These provide TAM baselines but may not match your specific offering.
Government data: Census Bureau, Bureau of Labor Statistics, and trade associations publish counts of businesses by size, industry, and geography.
Customer database analysis: If you have customers, analyze their characteristics. How many similar companies exist? This builds bottom-up TAM/SAM estimates.
Competitor analysis: Public competitors often disclose revenue, customer counts, and average contract values. Use these to estimate market size and your potential SOM.
Survey data: Ask prospects how much they spend on current solutions to the problem you solve. This reveals budget availability.
Expert interviews: Talk to industry experts, analysts, and customers about market dynamics, spending patterns, and growth trends.
Triangulate multiple sources. If your bottom-up calculation says $500M TAM but analyst reports say $2B, understand why. Maybe your definition is too narrow, or maybe analyst definitions include things you don't offer.
When to Use TAM-SAM-SOM
Use this framework when:
- Building business plans or pitch decks
- Prioritizing market segments or geographies
- Setting realistic revenue targets
- Deciding whether to enter new markets
- Communicating with investors or board
Don't use it when:
- You need quick directional sizing for a minor feature
- Your market is genuinely new and no data exists
- You're in rapid pivoting mode and market focus changes weekly
Market sizing is strategic work that requires real research. It's not something you do in an afternoon with Google searches.
Getting Started with Market Sizing
Start with bottom-up SOM: How many customers can you realistically acquire next year? What will they pay? That's your Year 1 SOM.
Then work backward to SAM: How many potential customers could you serve with your current product and business model? What would total revenue be if you captured all of them?
Finally, calculate TAM: How large is the total market if you remove all your current constraints?
Validate your numbers with multiple sources. Talk to industry experts. Review competitor data. Analyze existing customer spending.
Present all three numbers with clear assumptions documented. Investors and stakeholders need to understand how you calculated each level and what would need to change to expand SAM or SOM.
Market sizing isn't about proving your market is huge. It's about proving you understand market dynamics, competitive reality, and what you can realistically achieve. That credibility matters more than inflated TAM numbers.