What Is TAM SAM SOM?

The sources don't expand the acronyms the same way:

• TAM is total addressable market, or total available market. Spain's Oficina Nacional de Emprendimiento describes it as the market available if you reached 100%.
• SAM is serviceable available market, or serviceable addressable market. It is the part of the TAM that the company's product and distribution can reach, and segmentation helps to mark it out.
• SOM is serviceable obtainable market, and the Controller Institut also lists share of market. Salesforce defines it as what you can realistically convert within a timeframe. Antler describes it as what is already being served.

That last difference changes the figure: one is a forecast, the other a count of what already exists. So say which one you mean. This glossary takes the Salesforce version and states all three as annual revenue, as Carta and HubSpot do. Who coined the acronyms could not be traced, and no origin is settled here.

TAM is not market volume either. According to Researchly, volume is what gets bought today and TAM is what would get bought if nobody competed. That is why a sales figure from an industry report can't be passed off as TAM without saying so.

The misreading is to treat TAM as a number you look up. It is a multiplication, and whoever does it chooses both factors. The IPO prospectus WeWork filed on August 14, 2019 shows this clearly because it sets out the method. It counted 255 million people in 280 cities as potential members, based on desk jobs in US statistics and on selected occupations elsewhere, and it says it assumes these people need a workspace:

• At WeWork's average revenue per membership, that came to $1.6 trillion.
• At the average cost employers paid per employee, about $11,700 a year, that came to $3.0 trillion, which the prospectus calls the total opportunity.

The same people at a different price, and the figure nearly doubles. The second figure isn't a sales forecast either: it applies what employers spent per employee on offices to all 255 million people.

The market moves too. In June 2014, Professor Aswath Damodaran valued Uber using a $100 billion market for taxis and car services and a 10% share. A month later Bill Gurley, by his own account an investor and board member at Uber, replied that lower prices and new uses would enlarge that market, and he proposed $450 billion to $1.3 trillion. Neither figure is a measurement, and each depends on what you assume about the future.

There are two routes. Top-down starts from a published industry figure and cuts it with percentages. According to Carta, this is quicker and less accurate because it rests on estimates. Bottom-up counts possible customers and multiplies by what each pays per year. Carta says this is often more accurate, though it offers no measurement. Sequoia's 2017 guide asked for TAM top-down and SAM bottom-up, and left the route for SOM open.

Working bottom-up, the steps are these:

• Define who could buy and count them. For businesses, public registers help: the Statistics of U.S. Businesses, Spain's DIRCE from the INE (3.31 million active companies on January 1, 2025) or Germany's Unternehmensregister from Destatis (3.5 million legal units in 2024). Filter by industry and size, because the total says nothing about a specific product.
• Set annual revenue per customer from a real price or, if there isn't one, from an alternative already on sale.
• Multiply: that is the TAM.
• Remove those your product or distribution can't serve today: that is the SAM.
• Estimate how many customers you can win within a period with the resources you have: that is the SOM.

An invented example, with every figure invented: booking software for hair salons in Spain costs €50 a month per salon, so €600 a year.

Bottom-up:

• TAM: 40,000 salons × €600 = €24 million a year.
• SAM: the product only suits salons with two or more chairs, 15,000 × €600 = €9 million a year.
• SOM: two salespeople × 10 sign-ups a month × 36 months = 720 salons, and 720 × €600 = €432,000 a year after three years, before cancellations.

Top-down:

• TAM: an industry report puts software for beauty salons in Spain at €30 million a year.
• SAM: a third belongs to salons with two or more chairs, €10 million a year.
• SOM: assume 5% of SAM, €500,000 a year.

The two routes look alike because the example was written that way. In a real case, a wide gap means an assumption is wrong, and you look for it rather than taking the average. The weakest point is the last top-down step, because nothing justifies that 5%. The 720 salons, by contrast, depend on salespeople and sign-ups you can check. The result equals 4.8% of SAM, and that percentage comes out of the calculation rather than going into it.

These figures help you decide whether a market is worth the effort and explain to an investor where a forecast comes from. They also support other decisions: in go-to-market they help compare markets, in the Ansoff matrix they give each route a size, and in the Business Model Canvas they put numbers on customer segments.

What an investor asks for can change. Sequoia's guide asked for TAM, SAM and SOM in February 2017. In the June 2018 copy that item was already called market potential, it asked only to identify the customer and the market, and it added that some of the best companies invent their own. It still reads that way in November 2026. The guide gives no reason, so all that is established is that it no longer asks for the three figures. Carta says investors have no specific number and gives a TAM over $1 billion as a rule of thumb, with no measurement.

There is no correct SOM percentage either. HubSpot's Spanish blog suggests 1% to 5% of SAM in the early years and calls more than 5% to 10% within three years too optimistic. That is a rule of thumb, with no study cited at that point. No improvement figure appears here, because no independent measurement of how much this calculation improves decisions was read for this entry.

Nor do these acronyms test demand. A well-argued SOM stays an assumption until someone buys, which is what an MVP is for. The target audience describes who you address, while these figures say what that group is worth.

• Calculate both routes and explain the differences.
• Write each assumption next to the figure it produces.
• State the source and date of every starting value.
• Express all three figures in the same unit and over the same period.
• Say which definition of SOM you are using.
• Work out SOM from real sales capacity.
• Review the figures when price, country or product changes.

• Presenting TAM as a sales target.
• Copying the sales figure from an industry report as TAM.
• Setting SOM as a round percentage with no calculation behind it.
• Counting people in the TAM who couldn't pay for the product.
• Mixing annual revenue and one-off sales in the same sum.
• Treating today's market as a ceiling when the product changes price or use.
• Forgetting cancellations when working out SOM over several years.