Made Simple for Growing Businesses

What do TAM, SAM, and SOM have in common? They all have your market in mind for growing your business. The size of a potential market is a key consideration in many business decisions. It can determine how much product to make, how much to invest in small business marketing, how things are priced, and ultimately, how much money you make. If businesses don’t calculate the size of the market correctly, there can be a big disconnect between investing and how much it can pay off.

In this quick guide, we’ll break down what TAM, SAM, and SOM mean, why they matter for testing small business ideas, and how to calculate them effectively.

What you’ll learn:

Understanding TAM, SAM, and SOM

TAM, SAM, and SOM are metrics that help businesses understand the potential size of their market and set realistic goals for growth. 

Imagine you’re planning a big party. You wouldn’t order food for every person in town — you’d first estimate how many guests might attend. Then, you’d consider their dietary preferences, portion sizes, and allergies to avoid waste and ensure everyone is satisfied.

Similarly, before your small and medium-size business (SMB) invests in marketing or product development, you need to know the size and composition of the market before you can make a plan and capture leads. One way to do this is by calculating TAM, SAM, and SOM. Here’s the quick breakdown:

• TAM (Total Addressable Market)
• SAM (Serviceable Available Market)
• SOM (Serviceable Obtainable Market)

 Let’s start with TAM.

What is TAM?

TAM stands for ‘total addressable market’ and means the total revenue opportunity available if your business were to capture 100% of the market demand for your product or service. In other words, it represents the maximum size of your market — before narrowing it down based on factors like competition or geography.

For example, if you’re launching a new video game aimed at kids aged 8 to 12, your TAM would be the total number of children in that age group who play video games, multiplied by the average amount spent on games per child. While this number can be exciting to look at, not every potential customer will end up buying — which is why it’s just the starting point.

Understanding TAM is especially helpful when using advanced tools like Salesforce AI to explore market trends and uncover high-potential segments to focus your efforts.

What is SAM? 

SAM stands for ‘serviceable available market’ and is the portion of the total market your business can realistically serve. It’s based on factors like competition, geography, production capacity, and demographics. SAM gives you a clearer picture of your actual target audience — the people you’re most likely to reach and sell to.

For example, if you run an online jewelry business, your TAM would be the entire jewelry market. But your SAM might be young, professional women in a middle-income bracket who are more likely to buy your designs — rather than those shopping for high-end luxury pieces.

Using AI-driven insights from Salesforce CRM can help refine your SAM by identifying high-intent buyers and tailoring your marketing efforts to the right audience.

What is SOM?

SOM stands for ‘serviceable obtainable market’ and means the portion of your SAM that your business can realistically convert within a specific timeframe. Factors like pricing, market trends, competition, and available resources — such as your marketing budget and sales team size — influence how much of the market is truly within reach.

For example, a software-as-a-service (SaaS) startup helping restaurants reduce food waste might define its TAM as all restaurants. Its SAM could be multi-location restaurants with enough volume to benefit from the service. But its SOM — what’s realistically attainable in the short term — might be environmentally conscious restaurants in one region, where demand and resources align.

And, again, AI-powered customer relationship management (CRM) can help refine your SOM by predicting which customers are most likely to convert and optimizing marketing spend.

How to calculate TAM, SAM, and SOM

There are two ways to calculate market size with TAM, SAM, and SOM — from the top down or the bottom up. Let’s find out what works best for you.

The top-down market-sizing approach

The top-down approach relies mostly on external sources like industry reports, analyst data, and market research, combined with some estimates and assumptions. You start with the total market and then narrow it down to estimate what portion your business could realistically capture.

Pros: The top-down approach works well when launching brand-new products or services, especially when you don’t have much sales or customer data yet. It’s also a fast way to get a broad market overview for high-level planning. 

Cons: This method is only as accurate as the data available. If the numbers are off, you could overestimate your potential market — or miss key insights that could shape your strategy.   

The bottom-up market-sizing approach

The bottom-up approach starts with real sales data, customer insights, and localized calculations. You then scale those numbers up to estimate your total market potential.

Pros: Because this approach is based on actual data — like reports from your small business sales software — it tends to be more accurate.

Cons: It can be more time-consuming to research and calculate.  

How to calculate your TAM, SAM, SOM with both approaches

Let’s break down how you can calculate TAM, SAM, and SOM with real-world business scenarios. Whether you’re launching a software-as-a-service (SaaS) product or opening a retail store, these examples show how market sizing can guide your growth strategy.

Example 1: A retail business expanding into eco-friendly beauty (top-down approach)

Now, let’s say you’re opening a chain of stores that sell eco-friendly beauty products. Since you don’t have existing sales data yet, you take a top-down approach instead:

1. Identify TAM:
   Research shows the U.S. eco-friendly beauty industry is worth $6.5 billion. TAM = $6.5 billion
2. Refine your SAM:
   You plan to sell only in physical stores, and 46% of beauty shoppers prefer to buy in person. SAM = 46%

   TAM ($6.5 billion) x SAM (46%) = $2.99 billion

3. Find your SOM:
   This is a two part process. You’re starting with a few stores in Los Angeles, where about 1% of the U.S. population lives. First, that gives you a starting point for your SAM:

   SAM ($2.99 billion) x SOM (1%) = $29.9 million

   And next, based on competition and your marketing plans, you estimate you can capture 10% of the Los Angeles market in the first phase.

   SOM = $29.9 million x 10% = $2.99 million

Your service obtainable market (SOM) is $2.99 million. Go get em’!

Example 2: A project management SaaS startup (bottom-up approach)

Imagine you run a SaaS company that helps IT teams stay organized. After gaining traction, you decide to expand into the manufacturing industry. Here’s how you might calculate TAM, SAM, and SOM using a bottom-up approach:

1. Estimate TAM:
   Start by identifying how many manufacturing businesses exist in the U.S. — roughly 600,000. Next, use your existing customer data to estimate the annual revenue per customer, which is $10,000.

   TAM = 600,000 businesses × $10,000 per customer = $6 billion
   

2. Determine SAM:
   You know that your software works best for manufacturers with 50–100 employees who don’t need much customization. Research shows that 200,000 businesses fit this profile.

   SAM = 200,000 businesses × $10,000 per customer = $2 billion
   

3. Find SOM:
   Based on past performance and your marketing strategy, you estimate that your sales team can realistically acquire 1,000 new customers per year.

   SOM = 1,000 customers × $10,000 per customer = $10 million

Both approaches — bottom-up for SaaS and top-down for retail — show that accurate data and AI-powered market analysis can help you refine your strategy. Whether you’re using CRM software to track leads or AI tools for small businesses to analyze trends, your insights will shape smarter decisions.

Why TAM, SAM, and SOM matter for business strategy

Understanding TAM, SAM, and SOM provides a data-driven approach to business strategy, helping you attract investors and scale effectively. These market-sizing insights shape everything from revenue forecasts to marketing plans, making them essential for long-term success.

How startups and investors use TAM, SAM, and SOM

Both startups and their potential investors use these market-sizing exercises to evaluate the viability and potential of business ideas. TAM, SAM, and SOM are useful for anyone who wants to start a business by allowing them to:

• Evaluate for demand: Knowing the size of the total market (TAM) and the portion that a business can realistically service (SOM) gives a clear indication of the demand potential and if there is room to scale up.
• Understand growth potential: By examining the potential of different market segments through SAM, a business gets a realistic picture of where it can grow and by how much. 
• Attract investors: Well-researched TAM, SAM, and SOM exercises help investors evaluate both the business’s viability and its leadership, lending credibility to both.  
• Plan strategies and set budgets: Analyzing the market and defining a target helps inform every decision necessary to acquire customers — from brand messaging and marketing channels to pricing strategies and small business email marketing campaigns.  

Using this method for business growth

TAM, SAM, and SOM are small-business tools for those just starting out, but they also can be used throughout the life of a business. As a business enters the market, it will have new learnings and data — often gathered from AI for startups — to feed into these calculations, making them more accurate and valuable. Tools such as a CRM for startups can help identify target audiences and forecast future revenue to inform TAM, SAM, and SOM. Using these methods on an ongoing basis will help a business:

• Be proactive, agile, resilient: Revisiting these calculations periodically and keeping up on market changes will help you spot trends to capitalize on and prepare for headwinds. 
• Plan your strategy based on market segmentation: Regularly reviewing and adjusting TAM, SAM, and SOM helps you decide when it makes sense to scale up to a new market segment, expand to a new region, or to capture more of a market with your products or services. 
• Move from SOM to SAM, and maybe even TAM: Capturing more market segments often requires more investment — either from within or from outside investors. Keeping these measures in focus allows you to prove its readiness to take on more and can act as a guiding star to get there. 

Key takeaways

For businesses of any size, analyzing TAM, SAM, and SOM provides a clear roadmap for growth. TAM represents the full potential of an industry; SAM refines the focus to realistic opportunities, and SOM highlights what a company can achieve within a set timeframe based on its resources and competitive position.

By understanding these market segments, businesses can shape strategy, refine product development, attract investors, and uncover new growth opportunities with confidence.

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AI supported the writers who created this article.

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