How to Calculate TAM, SAM, and SOM Accurately

Whether you’re beginning a new business or wanting to grow an existing one, the first step is to determine your market size. Knowing the size of your market can help you assess your profit potential and set revenue targets. Not to mention how important it is when you need to acquire third-party funding for your firm. Every investor expects to see the market size for your firm on the very first slide of your pitch deck.

Before launching any new business venture, it is critical to consider the TAM of any product or service. No business or investor can afford to take a blind leap. The TAM aids in the creation of a tangible knowledge of the possible returns that an investment may provide in the future.

Calculating the total addressable market demonstrates the reality of a new enterprise and aids in determining its viability. The enthusiasm of being inspired by ideas or prospects can lead to rash actions, which can be costly in the long run if there is no actual foundation (or market) to build on.

You can’t just throw out a random figure and assume that someone would find it persuasive. But how can a company accurately estimate its market size? Total Addressable Market (TAM), Served Addressable Market (SAM), and Serviceable Obtainable Market (SOM) all play a role in this. 

Let us demonstrate how to do market size analysis utilizing the TAM, SAM, and SOM using infographics. Also, we will help you understand three distinct ways to calculate TAM:

  1. A top-down approach based on industry research and reporting.
  2. Bottom-up, based on data from early sales attempts.
  3. Value theory, based on customer willingness to pay hypothesis.