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TAM / SAM / SOM

Calculate Total, Serviceable, and Serviceable-Obtainable market sizes to know if the opportunity is big enough.

Why

TAM/SAM/SOM prevents you from chasing a market that is either too small to matter or too big to be meaningful to you. TAM (Total Addressable Market) is everyone who could possibly buy; SAM (Serviceable Addressable Market) is the subset you can actually reach; SOM (Serviceable Obtainable Market) is what you can realistically capture in 3-5 years. Investors care about TAM (is the ceiling high enough?), operators care about SOM (can we actually get there?). Without these numbers you are building blind — a $100B TAM feels exciting but is irrelevant if your SOM is $200K.

When

After smoke test passes, before seeking funding or committing to build. Takes 2-4 hours of research + calculation. Revisit annually as you grow.

How

1. Define your unit and price
   - Unit: per-user / per-seat / per-project / one-time
   - Price: your planned price (or competitor's if unsure)

2. Calculate TAM (top-down)
   - Find the total number of potential buyers globally
   - Sources: industry reports (Gartner/Forrester), census data, trade associations
   - TAM = total buyers × price

3. Calculate SAM (filter to your reach)
   - Apply constraints: geography, language, segment, channel
   - Example: TAM is global devs, SAM is English-speaking indie devs on GitHub
   - SAM = filtered buyers × price

4. Calculate SOM (what you can realistically capture)
   - Base on your channel, team size, and 3-5 year capacity
   - Rule of thumb: SOM = 1-5% of SAM for a new entrant
   - Sanity check: SOM vs your revenue goal — does capturing it meet your target?

5. Pressure-test
   - Bottom-up: count your reachable accounts directly, compare to top-down
   - If bottom-up SOM < top-down SOM by > 3x, your top-down is too optimistic

Example

Product: a CI/CD tool for solo indie developers.
Unit: $15/month per user.

TAM (global developers who pay for tools):
  - 30M professional developers worldwide (Evans Data 2025)
  - ~40% pay for dev tools = 12M
  - TAM = 12M × $15 × 12 = $2.16B/year

SAM (indie/solo devs on GitHub, English-speaking):
  - ~3M solo devs with public repos, English README
  - SAM = 3M × $15 × 12 = $540M/year

SOM (realistic 3-year capture):
  - 1% of SAM = $5.4M/year ARR target
  - Bottom-up: reach 30k paying users via GitHub Marketplace + content marketing
  - 30k × $15 × 12 = $5.4M ✓ consistent

Decision: SOM of $5.4M is viable for a bootstrapped solo founder → proceed.

Common Problems

  • ⚠Using TAM to make the decision — a $50B TAM is irrelevant if your SOM is $500K; always decide on SOM.
  • ⚠Counting everyone in a broad category as a buyer — "30M developers" includes students, hobbyists, and people who never pay for tools.
  • ⚠Assuming you can capture more than 5% of SAM — new entrants rarely exceed 1-3% in the first 3 years without a major channel advantage.
  • ⚠Static numbers — markets grow and shrink; a TAM calculated in 2023 may be half as relevant in 2026.

Best Practices

  • ✓Calculate both top-down (industry reports) and bottom-up (count your reachable accounts) — if they disagree by > 3x, find the error.
  • ✓Show your SOM calculation to a potential investor or experienced operator — they will spot optimism you cannot see yourself.
  • ✓Segment the SOM by channel — "$2M from GitHub Marketplace + $3M from content marketing" is more credible than a single $5M number.
  • ✓Revisit yearly with real data — replace assumptions with your actual conversion rates and channel economics as you learn them.