When you design new business models, a discussion is often about ”How big is the market?” and ”Which segments should we focus on?”. The TAM SAM SOM model can help you identify market size and define the addressable market. In this blog we will discuss ”What is TAM SAM SOM”, ”Why TAM SAM SOM?” and ”How to calculate TAM SAM SOM”. Of course we will also provide several TAM SAM SOM examples. Are you ready to learn more? Let’s dive in.

👉 Want to get started right away? Download the TAM SAM SOM template.

What is the TAM SAM SOM model?

TAM, SAM, and SOM are acronyms that stand for different levels of market segmentation:

1. Total addressable market (TAM): This is the entire market demand for a product or service. It represents the total revenue opportunity if you were to capture 100% of the market. The TAM is the biggest possible market for your business.
2. Serviceable available market (SAM): The SAM is a subset of the TAM. It represents the portion of the market that your business can currently target given your location, business model, or specialization. It’s the market you’re capable of serving right now, based on your business’s reach.
3. Serviceable obtainable market (SOM): SOM is a subset of SAM and represents the portion of the market you can realistically capture with your current resources. It’s your short-term focus, reflecting the market share you aim to achieve based on existing constraints like staff, capital, brand awareness, location, and competition.

Some people use a 4th block as an addition to the TAM SAM SOM model: Early Evangelist. Calculating this group can be relevant for startups or business models that are very innovative.

• Early evangelist (Optional): An early evangelist is one of the first customers to adopt and promote a new product or service. They provide valuable feedback and help validate the product’s value, often influencing others. Early evangelists are typically enthusiastic, open to trying new solutions, and willing to share their experiences.

Why use TAM SAM SOM model?

The TAM SAM SOM model is crucial for businesses to effectively understand and communicate market opportunities. The segmentation helps companies to identify potential market size, focus on reachable customer segments, and set realistic growth targets. The TAM SAM SOM model can help with:

• Making informed strategic decisions
• Prioritize resource allocation
• Present compelling cases to the board & investors
• More realistic ROI calculations

For who is TAM vs SAM vs SOM relevant?

Now that you are reading this article, you are probably wondering: “For whom is it interesting to apply TAM SAM SOM?” The following functions can benefit from applying the TAM SAM SOM model:

• Startups
• Corporate innovators
• Business leaders
• Business developers
• Investors
• Product managers
• Marketing managers
• Financial analysts

And more…

How to calculate TAM SAM SOM?

There are different ways you can calculate the values of your market:

• Top-down approach: estimating the total market size by analyzing macro-level data and then narrowing it down.
• Bottom-up approach: estimating the market size based on a proven datapoint & starts with the SOM or early evengelist. From the SOM or Early Evangelist you work outwards.

I. Top-down TAM vs SAM vs SOM market sizing

The top-down approach starts by examining a wide market scope and progressively focuses on specific target segments. This method often relies on industry reports, market research, and other secondary data sources to estimate the overall market size. From there, different assumptions and filters are applied to refine this into the Serviceable Available Market (SAM) and the Serviceable Obtainable Market (SOM).

Sources for top-down market sizing

The following data sources can help you define the TAM SAM SOM top-down.

Advantages of the top-down approach

• Provides a broad market perspective.
• Is relatively quick and easy to execute.
• Useful for initial market assessment and high-level strategic planning.

Cons of the top-down approach

• May rely heavily on secondary data, which can be outdated or inaccurate.
• Can be overly optimistic, as it may not consider specific market limitations or competitive dynamics.
• Can lead to an overestimation of the potential market size.

II. Bottom-up TAM vs SAM vs SOM market sizing

This method involves estimating the market size based on a proven datapoint & starts with the SOM or early evengelist. From the SOM or Early Evangelist you work outwards.

Sources for bottom-up market sizing

The following data sources can help you define the TAM SAM SOM bottom-up.

• Customer surveys: Direct feedback from potential or existing customers regarding their needs, preferences, and purchasing behaviors.
• Sales data: Historical sales data and revenue figures to project future market potential.
• Interviews with industry experts: Insights from industry professionals and experts on market trends and customer demand.
• Distributor and partner feedback: Information from distributors, suppliers, and partners about market demand and sales channels.
• Pilot programs and test markets: Results from initial product launches or trial markets to gauge potential market size.
• Company internal data: Analysis of internal metrics like website traffic, conversion rates, and customer acquisition costs to estimate market potential.

Advantages of the bottom-up approach

• Offers a more precise and detailed estimation of market size.
• Takes into account specific market dynamics and competitive factors.
• Provides a more dependable foundation for setting realistic revenue targets and sales forecasts.

Cons of the bottom-up approach

• Can be time-consuming and demand significant resources.
• Relies on access to trustworthy primary data sources.
• May still involve making certain assumptions and estimations.

Should you do top-down or bottom-up TAM?

That’s a good question. We prefer to apply both, especially given the fact that TAM SAM SOM calculations are always ”educated guesses”. They are based on assumptions and there will be differences in the calculations. Based on the 2 different outcomes, we adjust each preference to a version that feels most realistic.

Use our TAM SAM SOM template

To help you get started with TAM SAM SOM model, we have developed a handy template.

👉 Download the TAM SAM SOM template.

Discover our TAM SAM SOM model example

To clarify how TAM SAM SOM works we’ve created an example while using the top-down-, the buttom-up- and the value theory approach. As an example, we take a new music streaming service that has a superior algorithm to suggest the right music to suit a person’s music taste, time of day and mood. The unique element is that the music choices are tailored to someone’s biological clock.

I. TAM SAM SOM top-down example

Let’s start with the top-down example.

TAM | Top-down example

The global market for music streaming services is valued at $50 billion annually.

SAM | Top-down example

Focus on the segment interested in advanced, personalized music features. The assumption is that the serviceable available market (SAM) constitutes 10% of the global market.

SAM=10% of $50 billion=0.10×$50 billion=$5 billion

SOM | Top-down example

The startup will start launching in the Netherlands & Belgium. Estimate capturing 1% of the SAM.

SOM=1% of $5 billion=0.01×$5 billion=$50 million

Early evangelist | Top-down example

The assumption is that early evangelists represent 5% of the SOM.

Early Evangelist=5% of $50 million=0.05×$50 million=$2.5 million

II. TAM SAM SOM bottom-up example

Now let’s dive in our TAM SAM SOM buttom-up example:

Early evangelist | Bottom-up example

The startup attracted 10.000 users in the Netherlands who are willing to pay a $100/year for a subscription.

Early evangelist=10,000 users×$100 per user=$1 million

SOM | Bottom-up example

Based on research from third parties, the startup have the assumption that the acquired early evangelists represent 5% of the SOM. So the SOM is 20x bigger.

SOM =$1 million×20=$20 million

SAM | Bottom-up example

The startup thinks that the Netherlands & Belgium represents 1% of the serviceable available market (SAM).

SAM =$20 million×100=$2 billion

TAM | Bottom-up example

The startup thinks that the total available market can be 22x bigger. Based on their data, the segment who is interested in advanced, personalized music features is around 4,5% of the total.

TAM=$2 billion×22=$44 billion

Do you want to study more TAM SAM SOM examples?

Then study the following TAM SAM SOM examples. This article contains many examples from famous companies like:

• Zara
• Canada Goose
• ASOS
• Bonobos

What are common mistakes while using the TAM SAM SOM model?

Common mistakes when using the TAM SAM SOM model are:

• Lack of iteration: Not revisiting or adjusting estimates as new data becomes available..
• Overestimating TAM: Assuming the entire market is addressable without considering realistic constraints.
• Ignoring market segmentation: Failing to accurately define or segment the market for SAM, leading to inflated estimates.
• Overlooking competition: Neglecting the impact of competitors when calculating SOM.
• Relying solely on secondary data: Depending only on broad market reports without validating with primary data.
• Unrealistic assumptions: Making overly optimistic assumptions about market penetration or growth rates.

What are alternatives of the TAM SAM SOM model?

The TAM SAM SOM model is not the only method to assess the attractiveness of a market segment. This are some great alternatives:

Alternative 1: Enrico Fermi method

Enrico Fermi’s estimation method involves making rough, order-of-magnitude calculations by breaking down complex problems into simpler, manageable parts and using educated guesses to estimate quantities. In the context of estimating a market segment, this approach would involve dividing the market into smaller components, making approximations for each, and aggregating these estimates to derive a plausible market size.

Alternative 2: SPA Canvas

The SPA Canvas is a strategic tool used for evaluating marketsegments. It stands for Size, Potential and Access. You score those factors based on market research. You can give the aspects a weighting if one of the elements is more important in your decision-making. Based on the total sum of the assigned (1-10) scores, a distinction is made between the attractive and less attractive target groups.

It is not as complete as the TAM, SAM, SOM. But it can be set up quickly and is more intended to make segment choices, without immediately fully calculating the potential. Unfortunately, the explanation so far is only in Dutch.

Frequently asked questions about the TAM SAM SOM model

Occasionally we receive questions about the TAM SAM SOM model. To help you get started as best as possible, we would like to highlight a number of them here.

I. How reliable is the TAM SAM SOM model?

It are always based on educated guesses, so not 100% accurate. Also the reliability depends on several factors like:

• The accuracy and reliability of the data: If the data used for the calculations are inaccurate and contain a lot assumptions, this will influence the outcome.
• The product-market situation: A calculation for an existing product on an existing market will be a lot more reliable than a startup with a new product
• Contextual relevance: The reliability improves when it is applied in a specific context, such as for a niche product, rather than a broad market with many variables.

II. Why should I include the TAM SAM SOM model in my pitchdeck?

Including these metrics in your pitch deck highlights the market’s potential, identifies target segments, and provides realistic insights into achievable goals, enhancing the credibility of your business strategy. It also helps people understand the scale of the opportunity.

III. Can TAM, SAM, and SOM change over time?

Yes, these metrics can evolve as markets grow, competition changes, and as your company expands its capabilities or enters new markets.

Are you ready to boost your business?

I hope you liked our TAM SAM SOM guide. Use TAM SAM SOM model to assess the potential of new opportunities and bring focus to your business strategy. Do you need help identifying and capitalizing on new opportunities for your business? Then consider our Business Growth Consulting services.

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