How to calculate TAM, SAM and SOM
Calculate TAM as the number of possible buyers times what one pays a year, narrow it to SAM with the filters that limit who you can serve, then take SOM as the lower of a fair share of SAM and what your team can close in the time.
- Count the buyers. Every company, practice or person that could buy, worldwide, from a government count, trade association or registry where one exists.
- Price one buyer. What a buyer pays a year for the closest existing products, from their pricing pages. This is your ACV. TAM = buyers × ACV.
- Cut to your SAM. Multiply by the share in the regions you can sell into, the share that fits your segment, and the share your first channel can reach.
- Take a realistic SOM. A share of SAM (1 to 5%, by how crowded it is), capped at the customers you can close a month times the months in your plan.
- Check it top-down. Compare TAM with a published analyst figure. More than 3x apart means one of your numbers needs another look.
TAM = buyers × ACV
SAM = TAM × region% × segment% × channel%
SOM = min(SAM buyers × share%, new customers per month × months) × ACV
How to calculate SOM
SOM (serviceable obtainable market) is the lower of two numbers: the share of your SAM a new company can realistically win, and the customers your go-to-market can actually close in your time frame, times what each one pays.
- Share-based: SAM customers × 1 to 5%. Use the low end in a crowded market.
- Capacity-based: new customers you can close a month × months in the plan. A founder-led B2B team often closes 1 to 10 a month in year one.
- SOM = the lower of the two × ACV. When capacity is lower, your team, not the market, is the limit.
The common mistake is stopping at "1% of a huge market". Investors ask how you will close those customers; a SOM capped by capacity already answers it.
A worked example
Scheduling software for dental practices: 200,000 practices worldwide at $6,000 a year gives a TAM of $1.2B. Selling in one region (40%), to the half that are independent (50%), through a channel that reaches 30% gives a SAM of $72M, or 12,000 practices. 2% of those is 240 practices; closing 10 a month for three years could reach 360. The lower number, 240 practices, makes a SOM of $1.4M a year.
TAM vs SAM vs SOM
| Term | What it is | What it answers |
|---|---|---|
| TAM | Total addressable market: every possible buyer × annual price | How big could this ever get? |
| SAM | Serviceable addressable market: the part your product, region and channel can serve | Who can you actually sell to? |
| SOM | Serviceable obtainable market: what you can win in your plan's time frame | What revenue is realistic? |
TAM, SAM and SOM: questions
How do you calculate TAM, SAM and SOM?
Calculate TAM as the number of possible buyers times what one pays a year. Multiply TAM by the share in your regions, the share that fits your segment and the share your channel can reach to get SAM. SOM is the lower of a realistic share of SAM and the customers you can close in your time frame, times the annual price.
How do you calculate SOM?
SOM is the lower of two numbers times your annual price: the share of SAM customers a new company can win, usually 1 to 5 percent depending on competition, and the new customers your team can close per month times the months in your plan.
What is a good SOM as a percentage of SAM?
For a new company, 1 to 5 percent of SAM over three to five years is the usual range: closer to 1 percent in a crowded market and up to 5 percent when there are few direct rivals. If your sales capacity cannot close that many customers in the time, capacity sets the SOM instead.
What is the difference between TAM, SAM and SOM?
TAM (total addressable market) is everyone who could buy. SAM (serviceable addressable market) is the part your product, region and channel can serve. SOM (serviceable obtainable market) is what you can realistically win in your plan.
Should I size my market top-down or bottom-up?
Bottom-up, then check it top-down. A bottom-up TAM, buyers times price, is the number investors trust. A published analyst figure is a useful check: if the two are more than three times apart, one of your inputs needs another look.
Is this market size calculator free?
Yes. The calculator is free and needs no sign-up. The optional research, where NELL finds sourced numbers for your idea, is free too, up to five runs a day.
Where do the researched numbers come from?
Live web search at the time you run it: government and trade association counts for buyers, published pricing for what one buyer pays, and analyst reports for the top-down check. Every number shows its source, date and how much to trust it.