How to Calculate TAM, SAM, and SOM Accurately

How to Calculate TAM, SAM, and SOM Accurately

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.