How to Calculate TAM, SAM, and SOM Accurately

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What is Total Addressable Market (TAM)?

The total addressable market, often known as TAM, is the complete market demand for a product or service.


How to Calculate TAM in the Practical World

Let’s say you’re selling a digital marketing tool. You could technically have any-size customer anywhere in the world. 

TAM = (annual revenue per customer/contract) x (number of total possible customers/contracts).


SAM (Serviceable Addressable Market)

The SAM formula is account-product fit based on 

✅ Technographics

✅ Firmographics

✅ Scale 

✅ Persona-product fit based on titles

✅ Teams execs

✅ Budget holders

✅ All-time ACV (annual contract value)


SOM (Serviceable Obtainable Market)

Your SOM is what percentage of your SAM you can grab.




Three methods to calculate TAM:

  1. Value Theory
  2. Top Down
  3. Bottom-up

Three methods to calculate TAM

1. Value-theory

  • Focuses on adding value, especially how to add value and reasons that help you capture the market.
  • Based on assumptions about customer willingness to pay

2. Top-Down Approach

  • Starts with the highest size estimate possible
  • Uses industry research and reports.

3. Bottom-up Approach

  • Uses data from early selling efforts
  • Divide your average sales price by the number of current clients. This is the yearly worth of your contract. 
  • Then, divide the value of your annual contract by the number of clients.

Modern Ways to Calculate TAM

  • TAM was formerly calculated using firmographic data like revenue, company size, region, and so on
  • Today, it’s not just who needs your product. It is more about when will they need it and how will they use it. 
  • Along with firmographic data, the two most crucial insights to calculate your TAM are technographic and buyer intent data.
  • Modern data platforms offer this data.

Know Your TAM Before You Take Action

If you want to follow a realistic path toward success, you need to understand what’s actually possible. So let your total addressable market be your North Star and guide you through a journey rooted in reality, not hype.