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← Statistics glossary

TAM (total addressable market)

Also called: total addressable market

The total yearly revenue available if every potential customer of the kind you serve bought your product: number of potential customers × yearly price.

TAM, SAM and SOM are three nested estimates of how big a market is. TAM (total addressable market) is the yearly revenue you'd get if every potential customer of your kind bought the product. SAM (serviceable available market) is the part your product and channels can actually serve: the regions you can reach, the segments your product fits. SOM (serviceable obtainable market) is the share of SAM you can realistically win in the next few years.

Each one answers a different question. TAM tells you whether the category could ever be large; investors look at it first. SAM tells you how far your current product and sales approach can take you. SOM is the number to compare with your own goals, for example the revenue that would cover the founders' salaries. For a bootstrapped business SOM and SAM matter most: a huge TAM is useless if you can't reach it.

The most reliable way to size a market is bottom up: count real, nameable customers (from maps, directories, supplier lists, your own sales route), filter them by who actually fits, and multiply by your real price. Top-down estimates ("the market is worth X billion, we'll take 1%") are quick but tell you almost nothing about who will buy.

Example

GarageDesk costs 600 UAH a month, 7,200 UAH a year per shop.

  • TAM (an assumption to check): if Ukraine had about 9,000 independent shops that fit, TAM = 9,000 × 7,200 = 64,800,000 UAH a year.
  • SAM: the two cities the founders can reach in person, Vinnytsia (about 190 fitting shops) and Khmelnytskyi (about 150): 340 × 7,200 = 2,448,000 UAH a year.
  • SOM: winning one in four fitting shops within two years gives 340 × 0.25 = 85 shops, 85 × 7,200 = 612,000 UAH a year, or 51,000 UAH a month. That is just above the 84 shops (50,000 UAH a month) the two founders need to cover their living costs.

Common mistakes

  • Quoting TAM as your market. Nobody sells to the whole TAM; plan on SOM.
  • Top-down only. "1% of a huge market" says nothing about who will buy; count real customers bottom up.
  • Counting everyone in the category. Filter out those who don't fit (wrong size, wrong kind of work, no one to use the product).
  • Mixing monthly and yearly figures. Say which one you use; investors usually expect yearly TAM.