Market Sizing 101: Understanding TAM, SAM, and SOM
How to calculate market size and convince investors of your opportunity
Why Market Sizing Matters
VCs need to see a path to $100M+ revenue. Your market size proves it's possible.
The TAM-SAM-SOM Framework
TAM - Total Addressable Market
The total market demand for your product category.
Example: Project Management Software
TAM = All businesses globally × Average spend on PM tools
$50 Billion
SAM - Serviceable Addressable Market
The portion of TAM you can realistically target.
Example: PM Software for Tech Startups
SAM = Tech startups in English-speaking countries
$5 Billion
SOM - Serviceable Obtainable Market
What you can realistically capture in 3-5 years.
Example: Your realistic market share
SOM = 2% of SAM (conservative estimate)
$100 Million
3 Methods to Calculate Market Size
Top-Down
Start with industry reports and narrow down
✓ Quick but less accurate
Bottom-Up
Count potential customers × average price
✓ Most accurate method
Value Theory
Based on value created for customers
✓ Good for new categories
Bottom-Up Calculation Example
# of target companies: 50,000
× Adoption rate: 10%
× Average contract value: $20,000/year
= SOM: $100M annual revenue
Common Mistakes to Avoid
- Being too optimistic: "If we just get 1% of China..."
- Ignoring competition: Your TAM isn't yours alone
- Using outdated data: Markets change quickly
- Confusing TAM with revenue: TAM ≠ your revenue potential
- Not showing growth: VCs want expanding markets
Need Help with Market Sizing?
Use our AI-powered market analysis tool to calculate your TAM, SAM, and SOM in minutes.
Analyze Your Market