Understanding TAM, SAM, and SOM: A Practical Guide for Sizing Business Opportunities
Every business leader has wrestled with the same question: “How big is our real opportunity?” Whether you’re a CEO planning the next stage of growth, a marketing leader building a new product strategy, or a business owner looking to justify investment, understanding the size of your market is essential. It’s not just about dreaming big—it’s about setting realistic expectations and focusing resources where they’ll make the most impact.
This is where the concepts of Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) come into play. These three tools allow you to map out the opportunity landscape, distinguish between what’s possible and what’s practical, and help ground your business plan decisions.
From the Big Picture to What’s Realistic
Think of TAM, SAM, and SOM as three nested circles, each one smaller and more refined than the last.
The Total Addressable Market (TAM) represents the outer circle. It’s the total demand for your product or service if you had no limits—if you could sell to every potential customer everywhere in the world. For example, imagine you run a logistics software company. Your TAM might be the entire global market for logistics software, from massive shipping corporations to small trucking firms. It’s a useful number because it helps you understand the full potential of the industry you’re competing in. But it’s not the number you should build your sales forecast on.
The Serviceable Available Market (SAM) takes a step inward. It’s the portion of that total market you can realistically serve, based on your business model, the geography you serve, or the particular market segments you focus. In the logistics software example, your SAM might be narrowed to mid-sized U.S. trucking companies, since that’s the segment your product is designed for and where you have the ability to sell today.
Finally, the Serviceable Obtainable Market (SOM) zooms in to the slice of SAM that you can realistically win in the near term. This is the number that takes into account your sales force, marketing budget, competitive landscape, and current solution capabilities. In our logistics software case, while your SAM might represent $2 billion in potential revenue, your SOM could be a more realistic 2.5% share or $50 million, reflecting the accounts you can target in the next few years. SOM is where your business plan and revenue targets should be grounded.
Why Market Sizing Matters
These distinctions are not just theoretical. TAM, SAM, and SOM help leaders move from hopeful ambition to actionable strategy. They provide strategic clarity by distinguishing between the “total opportunity” and the “winnable share.” They help guide budgeting and resource allocation decisions and for companies seeking investment or board approval, they build credibility by showing that your growth plans are based on more than a hunch.
Most importantly, they help you avoid the costly mistake of overestimating your opportunity. Without these filters, it’s easy to get caught up in the size of a global industry and forget how small a piece of it you may actually be positioned to capture.
How to Estimate TAM, SAM, and SOM
There are different ways to calculate these numbers, and the right approach often depends on your industry. Many companies take a top-down approach, starting with industry reports, census data, or analyst estimates, then narrowing down by applying filters like geography or company size. This works well in larger industries where reliable reports are easier to find.
Others use a bottom-up approach, building estimates from the ground up based on their own pricing, sales, or unit economics. A manufacturer of industrial parts, for example, might calculate TAM by multiplying the average order size by the number of factories in their target category. Bottom-up analysis can provide an accurate picture for smaller or more niche B2B companies.
How Small and Mid-Sized Firms Benefit
For small and mid-sized businesses, TAM, SAM, and SOM aren’t just academic exercises—they’re practical tools for making decisions. They help prioritize growth by answering whether you should expand geographically or go deeper within your current customer base. They inform product roadmaps by highlighting which customer segments represent the biggest immediate opportunity. They support sales strategy by focusing efforts on high-value accounts rather than spreading teams thin. And when it comes to financing or attracting investors, a clear, credible market sizing exercise builds confidence in your growth story.
At the end of the day, TAM, SAM, and SOM are not about producing perfect numbers—they’re about creating a clear, structured way to think about your opportunity. The TAM shows you the horizon, the SAM focuses your field of vision, and the SOM gives you the ground you can realistically cover.
For leaders of small and mid-sized B2B organizations, using these tools can make the difference between chasing every possibility and pursuing the right opportunities. By pairing market-sizing methods with your own customer insights and execution capabilities, you can chart a path that is both ambitious and achievable.
