Glossary · Metrics · Updated
TAM, SAM and SOM describe three concentric market circles: TAM is the total theoretical market, SAM the portion your offer can genuinely address, SOM the portion you can capture in the near term. Investors look mainly at SOM, because it is the only one you are actually committing to.
These three numbers answer a single question: if everything goes well, how far can this company go? A venture fund needs any holding to be capable of returning the whole fund, which is why it passes on businesses whose market caps out, however good they are otherwise.
Two calculation methods exist and they do not carry the same credibility. Top-down takes a published market figure and applies a percentage: quick, and convincing to nobody. Bottom-up counts real potential customers and multiplies by an annual price: slower, more modest, and vastly more solid.
SOM is the one that stakes your credibility, because it corresponds to your financial plan. If the two do not match, the investor concludes either that the plan is unrealistic or that the market is overstated. Both are the same problem.
Example: a bottom-up calculation for a B2B SaaS
Document management software for French accounting firms.
| TAM (professional services software, Europe) | around €4B |
|---|---|
| Real target | French accounting firms with 10 to 200 staff |
| Number of firms in scope | 21,000 |
| Average annual price per firm | €6,000 |
| SAM (21,000 × €6,000) | €126,000,000 |
| Penetration target at 3 years | 2% of SAM |
| SOM at 3 years | €2,520,000 of ARR |
| Consistency with the plan | 420 customer firms in year 3 |
Top-down would have produced "1% of a €4B market, so €40M", a more impressive number and an instantly dismissed one. The €2.52M built customer by customer can be defended line by line, which is what makes it useful.
The common mistake
Presenting a huge TAM with no credible SOM. Claiming a multi-billion market and then a €3M year-three plan, with nothing explaining the path between them, reads as an admission that the market number was chosen to impress.
Frequently asked questions
What is the difference between TAM, SAM and SOM?+
TAM is the total theoretical market if everyone bought your product category. SAM is the share your offer can genuinely serve given your geography, segment and product. SOM is the share you can reasonably capture within about three years.
How do you size a market credibly?+
Bottom-up: count the companies or people who precisely match your target, multiply by the annual price you actually charge. The result is smaller than a top-down estimate, but it survives line-by-line questioning in a meeting.
Related terms
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