Calculate Total Addressable Market
Introduction to Market Sizing
How Big is Your Pond?
Before you launch a new product or business, you need to know how many potential customers are out there. Are you fishing in a small pond or a massive ocean? This basic question is the heart of market sizing. It's the process of estimating the total number of potential customers or the total potential revenue for your product.
Why bother? Because it helps you make smarter decisions. Market sizing can tell you if an idea is worth pursuing, help you attract investors, and guide your marketing and sales strategies. Without it, you're just guessing. With it, you have a roadmap.
A key first step in understanding your market and gauging the growth of your business is to calculate your total addressable market (TAM).
TAM, SAM, and SOM
To get a clear picture of your market, strategists break it down into three nested categories. Think of it like a set of Russian dolls, with each one fitting inside the other.
TAM
noun
Total Addressable Market. This is the biggest doll. It represents the total demand for a product or service across all possible customers, everywhere. It's the theoretical maximum size of your market.
TAM gives you the big-picture potential. It's your entire universe of customers if you had no competition and no limitations.
SAM
noun
Serviceable Available Market. This is the middle doll. It's the segment of the TAM that you can actually reach with your product, given your business model and geographical or logistical constraints.
SAM is a more realistic view of the market slice you can actually target.
SOM
noun
Serviceable Obtainable Market. This is the smallest doll, and the one you should focus on most in the short term. It's the portion of your SAM that you can realistically capture and win as customers, considering your competition and resources.
SOM is your target for the immediate future. It's your piece of the pie. The relationship between these three concepts helps to visualize your market opportunity from a wide-angle view down to a specific, actionable target.
Think of it this way: TAM is everyone who eats pizza. SAM is everyone who eats pizza in the neighborhoods where you deliver. SOM is the number of customers you believe will actually order from your pizza shop in the next year.
Understanding this framework is the first step toward building a solid business plan. It grounds your ambitions in reality and helps you set achievable goals.
What is the primary purpose of market sizing?
Which market category represents the segment of the market you can realistically target and capture in the near term?