TAM / SAM / SOM
A framework for sizing market opportunity: Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market.
Definition
TAM (Total Addressable Market) is the total revenue opportunity if you captured 100% of the market. SAM (Serviceable Addressable Market) is the portion of TAM your product can realistically serve given its current capabilities and geography. SOM (Serviceable Obtainable Market) is the portion of SAM you can realistically capture in the near term given competition and go-to-market constraints. Investors use this framework to evaluate market size and growth potential.
Why It Matters
Market size determines the ceiling on a startup's potential. A great product in a small market has limited upside. Investors funding venture-scale returns need to see a credible path to a large market. However, most founders overestimate TAM and underestimate how long it takes to capture even a small SAM.
Example
TAM: all global HR software ($50B). SAM: SMB HR software in North America ($5B). SOM: SMB HR software for tech companies under 100 employees ($200M).