How To Calculate Your TAM, SAM & SOM?
To understand how large your market opportunity is, focus on three key metrics:
- TAM (Total Addressable Market): The total revenue opportunity if you captured 100% of the market.
- SAM (Serviceable Addressable Market): The portion of TAM you can target based on your product, business model, and reach.
- SOM (Serviceable Obtainable Market): The realistic share of SAM you can achieve, factoring in competition and resources.
These metrics help prioritize leads, allocate budgets, and set realistic goals. For TAM, you can use two methods:
- Top-Down: Use industry reports to estimate the total market size and adjust for your segment.
- Bottom-Up: Multiply your Average Revenue Per Customer (ARPC) by the number of potential customers for more precise figures.
SAM and SOM refine TAM further:
- SAM: Apply filters like geography, customer profiles, or technology compatibility to calculate the targetable market.
- SOM: Assess your capacity, competition, and market conditions to determine the market share you can achieve.
Tools like Leadsforge simplify market sizing by combining AI-driven lead generation with data enrichment, making it easier to calculate and act on your TAM, SAM, and SOM.
TAM SAM SOM Market Sizing Framework Explained
How to Calculate TAM
To calculate your Total Addressable Market (TAM), you can use either a top-down or bottom-up approach. Interestingly, 67% of high-growth companies update their TAM analysis quarterly to maintain accuracy.
For new product launches with limited data, the top-down method provides a quick snapshot of the market. On the other hand, the bottom-up method is ideal for niche B2B segments where more precise data is available. Research shows that startups conducting thorough TAM analysis secure 40% more funding and achieve product-market fit three times faster - typically within 18 months. Let’s break down these methods to help you understand your market potential.
Top-Down Approach
The top-down approach begins with the big picture. This method uses total market size data from trusted industry reports and applies filters to narrow the scope to your specific target segment. It’s a quick and efficient way to get a high-level estimate, especially for new product categories where internal data might be scarce.
For example, in 2024, a retail chain planning to open eco-friendly beauty stores used this approach. They discovered that the U.S. eco-friendly beauty industry was worth $6.5 billion through external research. Adjusting for in-person purchase behavior (46%), they calculated their Serviceable Addressable Market (SAM). The formula? Total Market Size × Your Segment Percentage = TAM.
Another case: A pizzeria owner in Manhattan evaluated TAM for expansion using population data. With 1.7 million residents and research showing New Yorkers eat 3 pizzas per capita annually at an average price of $20, the TAM was estimated at $102 million (1.7M × 3 × $20). While quick, this method often overlooks competition and actual buying behavior.
"The top-down approach can come across as lazy - as though the founder simply grabbed some data off Google - and it doesn't necessarily paint a picture around how the startup sees itself placed in the market." – Akshat Agarwal, Manager, Investments, Antler
Though it provides a broad estimate, the top-down method lacks the precision of the bottom-up approach, which relies on your own sales data.
Bottom-Up Approach
The bottom-up method takes a more detailed route, building TAM calculations from your Average Revenue Per Customer (ARPC) or Annual Contract Value (ACV) and multiplying it by the number of potential customers. This approach is particularly effective for B2B markets because it uses real-world pricing and account data.
Formula: Total Number of Potential Customers × ARPC = TAM.
In 2024, a SaaS startup targeting U.S. manufacturing companies identified 600,000 potential businesses. Using their existing customer data, they estimated an annual revenue per customer of $10,000, resulting in a TAM of $6 billion (600,000 × $10,000).
Another example comes from a CRM software company launching in January 2025. They segmented their market into 50,000 tech businesses with an ARPC of $50/month and 80,000 retail businesses with an ARPC of $30/month. By calculating each segment separately and combining the results [(50,000 × $50) + (80,000 × $30)], they arrived at a monthly TAM of $4.9 million.
This method demands robust CRM data, customer surveys, and a well-defined Ideal Customer Profile (ICP). Businesses with strong ICPs report 68% higher account win rates. For investors, the bottom-up approach demonstrates a deep understanding of the market and provides defensible numbers.
Top-Down vs. Bottom-Up: Which Method to Use
Both approaches have their advantages, and the most effective teams often combine them. If the results from the two methods differ significantly, it’s a sign to revisit your assumptions. Here’s a side-by-side comparison:
| Feature | Top-Down Approach | Bottom-Up Approach |
|---|---|---|
| Data Source | External industry reports (e.g., Gartner, Forrester) | Internal sales data, customer surveys, and ACV |
| Speed | Quick; offers a big-picture overview | Slower; requires detailed research |
| Accuracy | Lower; prone to overestimation | Higher; based on real data |
| Best Use Case | New product launches; investor pitches | Operational planning; niche B2B markets |
| B2B Suitability | General context | Highly effective for account-based strategies |
For B2B businesses, the bottom-up approach is often the better choice for operational planning because it reflects actual sales capacity and pricing. However, the top-down method can be useful for initial market validation or investor presentations to highlight broader opportunities. A smart strategy is to start with the top-down estimate to understand the overall potential, then validate it with bottom-up data to show how much of the market you can realistically capture.
"In my experience, these tools are extremely informative when determining how to niche. Take the time, and understand the opportunity or lack thereof with your new target." – Lori Highby, Keystone Click
How to Calculate SAM and SOM from TAM
Once you've defined your Total Addressable Market (TAM), it's time to refine it into Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM). These steps help you focus on a realistic market target. SAM represents the portion of TAM that fits your business model, while SOM narrows it further to reflect the share you can realistically capture within 12–24 months.
It’s all about applying practical filters to your TAM. For instance, 71% of high-performing companies rely on clearly defined customer profiles to guide their market sizing efforts. Here’s how you can calculate SAM and SOM effectively.
Calculating SAM
To transition from TAM to SAM, apply filters like geography, firmographics (e.g., company size, industry, technology stack), and other relevant criteria. For example, if your product integrates exclusively with Salesforce, focus only on companies using Salesforce.
Let’s consider a real-world example: A B2B SaaS company identifies a TAM of $6 billion by targeting 600,000 U.S.-based manufacturing businesses. By narrowing the scope to businesses with 50+ employees, operating in English-speaking markets, and using cloud-based ERP systems, they refine their SAM to 90,000 companies. With an Average Annual Contract Value (ACV) of $10,000, this results in a SAM of about $900 million.
"SAM removes the fluff. It's grounded in where your product fits and who you can reasonably target." – Darren Gooding, Sopro
The key is to align SAM with your Ideal Customer Profile (ICP). This ensures your targeting is both focused and achievable. Once SAM is defined, you can move on to estimating SOM.
Calculating SOM
SOM takes things a step further by accounting for both internal and external factors. Internally, consider your sales team’s capacity, marketing budget, and brand recognition. Externally, evaluate competitor market share and overall market saturation. For new entrants, SOM typically ranges from 1% to 5% of SAM.
Here’s an example: If your SAM is $900 million (based on 90,000 potential customers at an ACV of $10,000), capturing 1% to 5% of this market means securing between 900 and 4,500 customers. At a 1% capture rate, this translates to a SOM of $9 million.
For established companies, historical market share can guide SOM estimates. For instance, if a business earned $2 million from a $900 million SAM last year (a 0.22% market share), they might aim for a modest increase to 0.3% this year, projecting a SOM of roughly $2.7 million.
"SOM is where things get real. Investors look at SOM to understand whether you've done a grounded, bottom-up forecast." – Ivelina Dineva, GoingVC
To calculate SOM effectively, assess your operational capacity. Consider factors like team bandwidth, customer acquisition costs, and sales cycle length. Using reliable metrics and historical data ensures your revenue targets are both realistic and achievable.
Using Leadsforge for TAM, SAM & SOM Calculations
Figuring out your market size doesn’t have to mean wrestling with spreadsheets or digging through endless industry reports. Leadsforge simplifies this process by combining AI-driven lead generation with real-time data enrichment. With access to over 500 million contacts worldwide, it brings traditional market estimates to life by leveraging real account data.
AI-Powered Lead Generation
Leadsforge takes a conversational approach to pinpoint your market. All you need to do is describe your Ideal Customer Profile (ICP) in plain language - similar to chatting with ChatGPT - and the platform will generate targeted lead lists for you. This makes it easy to test different market ideas and refine your TAM (Total Addressable Market) and SAM (Serviceable Available Market) estimates on the fly without waiting for time-consuming research.
Want to dig deeper? The Company Lookalike Search feature helps you find businesses similar to your existing customers, uncovering new opportunities in your serviceable market. You can even turn followers of company pages into targeted lists, giving you a sharper view of your SOM (Serviceable Obtainable Market) by focusing on active interest and intent signals.
This streamlined lead generation process naturally feeds into more accurate data enrichment, sharpening your market estimates even further.
Data Enrichment for Precise Calculations
Accurate bottom-up market size calculations rely on verified contact data, and Leadsforge has this covered. Its waterfall data enrichment method taps into multiple sources to fetch verified emails, LinkedIn profiles, and phone numbers. This multi-source approach ensures higher match rates than single-source tools, so your market size estimates are based on contacts you can actually reach.
With access to over 500 million verified contacts, Leadsforge allows you to confidently calculate your SAM and SOM. You can filter by company size, industry, location, or even technology stack to zero in on the organizations that align perfectly with your business model. The platform’s reliability is reflected in its 4.6/5 rating on G2, making it a trusted choice for B2B market sizing.
And the best part? This enriched data flows directly into market outreach, saving you time and effort.
Integration with The Forge Stack
Leadsforge works hand-in-hand with Salesforge, making it easy to transition from market sizing to outreach. Once you’ve nailed down your SOM, you can push lead lists directly into multi-channel sequences without the hassle of manual exports. This seamless integration ensures that your market sizing efforts quickly translate into revenue-generating activities.
Pricing is straightforward: plans start at $49 per month for 2,000 credits, with 100 free credits for new users. Plus, credits never expire, giving you flexibility.
Conclusion
Grasping the concepts of TAM, SAM, and SOM gives your business a clear path for growth. TAM represents the total market opportunity, SAM narrows it down to the portion you can realistically target, and SOM identifies the share you can feasibly capture. These aren’t just figures for impressing investors - they’re actionable insights that can shape your sales and marketing strategies to match actual market potential.
To calculate these metrics effectively, start with a well-defined Ideal Customer Profile (ICP) and use a mix of methods and data enrichment tools. Top-down approaches, like analyzing industry reports, provide a quick snapshot of the market. However, bottom-up calculations, such as multiplying the number of potential accounts by the average annual contract value, offer more precise data - especially for businesses with established sales figures. As mentioned earlier, focusing on account-level data ensures accuracy and usability in real-world scenarios.
Tools like Leadsforge make market sizing more than just a theoretical task. By combining real-time data enrichment with access to over 500 million verified contacts, Leadsforge allows you to create targeted lead lists based on your ICP. This approach turns your serviceable market into something actionable. Plus, as market dynamics shift, these tools help keep your data up-to-date and relevant.
Markets evolve, and so should your TAM, SAM, and SOM calculations. Think of these metrics as dynamic guides, not static reports. Regularly updating them ensures you can identify emerging opportunities and adapt your strategies quickly. By using tools like Leadsforge and refining your data consistently, you’ll stay aligned with market changes, enabling smarter decisions and unlocking growth potential.
FAQs
How often should I update my TAM, SAM, and SOM calculations?
You should keep your TAM, SAM, and SOM calculations up to date to ensure they reflect current market conditions and business realities. How often you update these figures depends on factors like changes in your industry, the pace of your business growth, and shifts in your target audience. For most companies, an annual review works well, but during times of rapid change - like launching new products or expanding into different markets - you might need to revisit them more often.
It’s also a good idea to revisit these metrics when major changes happen in your industry, such as the arrival of new competitors, updates to regulations, or the rise of new trends. Regular updates not only keep your data accurate but also help you uncover growth opportunities and fine-tune your strategies.
What are the advantages of using a bottom-up approach for calculating market size?
The bottom-up approach relies on real-world data - like the number of reachable customers, average revenue per user (ARPU), and actual purchasing behavior - to calculate market size. This method produces more precise results for TAM, SAM, and SOM, making it particularly useful for niche or emerging B2B markets where broad industry figures can often be misleading.
Another advantage of this approach is its adaptability. You can tailor calculations to specific customer groups, regions, or product lines, helping your business zero in on the most promising growth opportunities. Investors also tend to favor bottom-up estimates because they provide a clear, data-backed pathway to revenue. This reduces uncertainty and strengthens fundraising conversations. Plus, as new customer data rolls in, the approach can be updated, keeping your market analysis accurate and actionable.
How does Leadsforge simplify TAM, SAM, and SOM calculations?
Leadsforge transforms the way you approach market sizing by delivering enriched and precise firmographic and intent data. This means your TAM (Total Addressable Market), SAM (Serviceable Available Market), and SOM (Serviceable Obtainable Market) calculations become not just numbers, but actionable insights. By analyzing company-level details like industry, revenue, and employee count, combined with buyer intent signals, Leadsforge helps you fine-tune your TAM into a practical SAM and narrow it further into an achievable SOM - all based on real engagement data.
With its automation tools and seamless integrations, Leadsforge simplifies the process of building lists and ensures your data stays up-to-date. This keeps your market insights accurate and actionable. By taking a data-driven approach, you can uncover growth opportunities, prioritize the right market segments, and allocate resources effectively - all while cutting down on time-consuming guesswork.