TAM / SAM / SOM
A three-level framework for sizing a market: Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market.
TAM (Total Addressable Market) is the total revenue opportunity if a product achieved 100% market share. SAM (Serviceable Addressable Market) is the portion of TAM that the company's specific product can address, given its features, geography, and go-to-market. SOM (Serviceable Obtainable Market) is the realistic portion of SAM the company can capture in the near term.
Investors use TAM/SAM/SOM to assess whether a market is large enough to support a venture-scale outcome. Most VCs look for a TAM of at least $1B, because they need portfolio companies with the potential for 10x+ returns to compensate for the majority of investments that fail. A company in a $50M TAM might be a great business but is unlikely to produce venture-scale returns.
The most credible market sizing approaches are bottom-up: count the potential customers, estimate what they would pay, and multiply. Top-down approaches (starting with a large industry number and taking a percentage) are less convincing because they can make any market look big. Founders should be honest about their SOM and show a clear path to expanding it over time through product development, geographic expansion, or adjacent market entry.
Example
A vertical SaaS company building for dental practices: TAM is all dental practice management software globally ($4B). SAM is US practices with 3+ dentists who would benefit from their specific platform ($800M). SOM is the 5% of that segment they can realistically reach through their sales model in 3 years ($40M).
Related Terms
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