What is TAM, SAM and SOM?

Three rings, three questions

Each figure answers a different question. TAM asks how big this could ever be, which tells an investor whether the company can become large enough to matter. SAM asks how much of that the company can reach with what it has built, which tests focus. SOM asks what it can realistically capture soon, which is the number the plan and the raise are actually built on. Y Combinator's guide to seed fundraising defines TAM as the estimated total revenue available for the products you are selling, and suggests a market slide showing a total above one billion dollars if possible, with the most persuasive evidence available that it is real. Sequoia Capital's pitching guide simply asks founders to identify the customer and the market, and adds that some of the best companies invent their own markets.

Where the terms come from

The vocabulary grew out of corporate strategy and sales planning, where companies sized territories before committing salespeople to them, and it moved into startup pitching as venture investors standardised what they wanted to see. The acronyms are not governed by any standard body, so definitions vary slightly: some writers use serviceable available market for SAM, and some call SOM the share of market. What stays constant is the nesting. Each ring sits inside the one before it, and each is a subset defined by a stated rule.

Bottom up against top down

A top down estimate starts from a published industry figure and takes a percentage of it. It is quick and gives a sense of scale, but it tends to produce enormous, unconvincing numbers, because the report measures a category the company does not really compete in. A bottom up estimate counts actual customers and multiplies by an actual price, as Antler's guide to market sizing describes: the number of potential customers multiplied by annual contract value. Bottom up is slower and smaller, and far more persuasive, because every input can be checked. The strongest market slides use bottom up for the rings and a top down figure only as a sanity check.

Common mistakes

The classic is the one percent argument: a vast TAM and a claim that capturing a sliver of it is easy, which tells an investor the founder has not thought about how customers are won. The second is a SAM that includes countries, segments or languages the product does not yet support. The third is a SOM plucked as a round percentage rather than derived from win rates and sales capacity. The fourth is circles with numbers but no definitions, so the reader cannot tell what each ring contains. The fifth is mixing revenue with units, or annual with lifetime values, between rings. The sixth is quoting a market report without its date or source.

How the slide should look

Three nested circles or three stacked bars are the familiar shapes, and either works if each ring carries a label, a one line definition and its number. What matters more is the line of arithmetic beside each: 16,000 clinics times $3,000 equals $48 million. A reader who sees the inputs can agree or disagree with them in a sentence, which is a better conversation than disbelieving an unexplained billion. If there is room, a footnote with the source and date of any external figure closes the obvious question.

Where it shows up in the product

The SaaS pitch deck example on this site sizes its market as three rings, each defined in a line and sized bottom up from a count of firms, ending at a three year obtainable figure. When generating a deck, put your own counts and prices in the brief. Research is limited to one web search and up to two fetched pages per deck and only grounds the writing, and sources are never printed on slides, so any report figure you rely on needs its citation added to the slide text by you. Metrics and diagram are separate slide roles with their own templates, and a chart dropped from the element library offers all 10 chart kinds, including donut and bar charts.

Questions people ask