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<\/a><\/strong><\/p>\nBusiness owners can use these calculations to determine the viability of a business. Product teams can validate new product offerings. But that\u2019s just the tip of the iceberg when it comes to the potential of the TAM, SAM and SOM trio.<\/p>\n
Ignoring these numbers can be detrimental. You could enter a market that doesn\u2019t have a large enough market size to convince investors to back you, or you could set an unrealistic revenue goal for your business and burn your employees out.<\/p>\n
To help you avoid these issues, I\u2019ve put together a guide that\u2019ll teach you exactly how to calculate your industry\u2019s total addressable market<\/a>, serviceable addressable market, and share of market.<\/p>\n Table of Contents<\/strong><\/p>\n <\/a> <\/p>\n \n These metrics are key components of a business plan, particularly as you craft your marketing and sales strategy<\/a>, set realistic revenue goals, and choose to enter the markets that are worth your time and resources.<\/p>\n Before I break down how to use these in your business, let\u2019s get clear on what TAM, SAM, and SOM are and their relationship with one another.<\/p>\n <\/a> <\/p>\n If you\u2019re new to TAM SAM SOM, it\u2019s easy to feel like you took a wrong turn somewhere and landed in alphabet soup.<\/p>\n But, I want you to know that TAM, SAM, and SOM are simply overlapping metrics that make it easier to fine-tune your business plan, identify achievable goals, and understand the potential revenue and operational impacts of certain business decisions.<\/p>\n So let\u2019s break them down.<\/p>\n TAM Definition:<\/em><\/strong> The maximum potential demand of a specific market.<\/em><\/p>\n I know it can seem like finding this information can feel like a big task, so I\u2019ll show you how<\/em> to calculate TAM below.<\/p>\n In the meantime, to simplify it further, total addressable market or TAM refers to the total market size<\/a> \u2014 more specifically, the demand for a product or service. It\u2019s the maximum amount of revenue a business can generate by selling its product or service in a specific market.<\/p>\n Total addressable market is most useful for businesses to objectively estimate a specific market\u2019s potential for growth. This data also helps companies figure out product market fit.<\/p>\n SAM Definition: <\/em><\/strong>The size of the TAM you can reasonably target as you build your audience.<\/em><\/p>\n Due to the limitations of your business model, which might include your specialization or geographic limitations, among other variables, you\u2019ll have a tough time servicing your total addressable market.<\/p>\n SAM is a segment of TAM you can use to identify the addressable potential of a market segment, or the amount you can realistically market to, making it easier to estimate revenue and audience targets.<\/p>\n Serviceable addressable market is most useful for businesses to objectively estimate the part of the market they can acquire to figure out their targets.<\/p>\n SOM Definition<\/em><\/strong>: The size of the SAM you can potentially convert.<\/em><\/p>\n Unless you’re a monopoly, you most likely can\u2019t capture 100% of your serviceable addressable market. Even if you only have one competitor, it would still be extremely difficult to convince an entire market to only buy your product or service.<\/p>\n That\u2019s why it\u2019s crucial to measure your serviceable obtainable market to estimate how many customers would realistically benefit from buying your product or service.<\/p>\n Serviceable obtainable market is most useful for businesses to determine short-term growth targets. It can also help with competitive awareness and strategizing.<\/p>\n <\/a> <\/p>\n TAM, SAM, and SOM are essential to business strategy<\/a> and growth planning<\/a>. This is because these metrics show how much opportunity a particular market holds at every stage of business growth.<\/p>\n TAM SAM SOM is also useful because it\u2019s a simple and succinct way to present the value of an idea. This data gives teams an idea of the target audience and income opportunities for a market or niche.<\/p>\n These metrics can also help businesses share key insights with investors if they are seeking funding. The process makes it easier to make decisions that impact growth<\/a>.<\/p>\n For example, say you don’t have a clear picture of the right segment for your SAM. This could make your serviceable addressable market too big, which can then impact your SOM.<\/p>\n \u201cIn 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,\u201d says Lori Highby<\/a> of Keystone Click<\/a>.<\/p>\n Highby says as her team niches further in their business, they use numbers from market research reports from firms like Gartner, Forrester, etc. as well as government and trade associations to calculate TAM, SAM, and SOM. They can then \u201cfind out which niche is the most viable,\u201d says Highby.<\/p>\n <\/a> <\/p>\n I know that all this sounds great, but it can be tough to understand how to actually<\/em> do TAM, SAM, and SOM calculations and use the data for your business. So, let\u2019s break this down into some steps you can follow.<\/p>\n Before you can do a TAM SAM SOM, you need to figure out what your market is, and what you\u2019re marketing \u2014 a service, a specific product, or even a category of products.<\/p>\n To calculate this, get as clear and specific as you can about your audience, factoring aspects like:<\/p>\n Now, it\u2019s market research time \u2014 dig in to find out how many potential customers are out there and the potential revenue value if everyone in that market purchases.<\/p>\n For example, if I\u2019m looking at women between the ages of 25 and 65, I\u2019d want to find out how many women fit that definition. Then, I\u2019d calculate the potential revenue if all those millions of women bought your product.<\/p>\n In the example above, let\u2019s say I work for a high-end luxury women\u2019s professional clothing retailer looking at the U.S. market.<\/p>\n So, I want to find how many women fit the demographic of ages 25 to 65 in the U.S. and then calculate the potential revenue.<\/p>\n People living paycheck to paycheck aren\u2019t likely to shop my brand, and women who don\u2019t work in offices or don\u2019t regularly attend professional functions are less likely to be my target market.<\/p>\n Since my SOM calculation is about estimating the portion of the SAM I can realistically market to, I might find it by refining my market by income and\/or employment. I can then refine it further by identifying the portion of that market I\u2019m likely to capture, given the competitive landscape.<\/p>\n Now that you have the calculation, it\u2019s time to dig into the data and strategize. I\u2019ll start by asking questions like:<\/p>\n Then, when I\u2019m armed with answers, I can think about strategies for standing out from the competition and leaning into my strengths to reach my market.<\/p>\n <\/a> <\/p>\n Now that you know what each of these acronyms is and what they\u2019re used for, let\u2019s get into the nitty-gritty of how to calculate TAM, SOM, and SAM.<\/p>\n Doing so requires advanced market research ahead of time, but here are the formulas once you’re able to get those figures.<\/p>\n The best way to calculate total addressable market is by running a bottom-up analysis of an industry:<\/strong><\/p>\n TAM is useful for:<\/strong><\/p>\n Using our sample high-end professional women\u2019s apparel for this calculation, I learned that the global women\u2019s apparel market was US$1.002 trillion in 2023 (IMARC group<\/a>). Assuming growth of 3.3% each year, we can estimate that number to be $1.035 trillion in 2024.<\/p>\n Pro tip:<\/strong> If you want to make your life easier when calculating TAM, use HubSpot\u2019s TAM analysis template<\/a>. It completely demystified the concept for me and helped me understand not just tam, but also the ACV itself.<\/p>\n To calculate your serviceable addressable market:<\/strong><\/p>\n SAM is useful for:<\/strong><\/p>\n To continue using our sample high-end women\u2019s professional apparel brand, remember we were looking at women ages 25-65. Using data from the latest census, there are 86 million women in that range.<\/p>\n Let\u2019s say that each year, those 86 million women spend $2,000 on average every year on apparel.<\/p>\n 86 million x $2,000 = $172 billion SAM<\/p>\n\n
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![\"this](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-1-20250227-7814463.webp\" "\\"\\"")
<\/p>\nTAM SAM SOM Definitions<\/strong><\/h2>\n
TAM (Total Addressable Market)<\/strong><\/h3>\n
![\"tam](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-2-20250227-8697996.webp\" "\\"\\"")
<\/p>\nSAM (Serviceable Addressable Market)<\/strong><\/h3>\n
![\"sam](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-3-20250227-6735656.webp\" "\\"\\"")
<\/p>\nSOM (Serviceable Obtainable Market)<\/strong><\/h3>\n
![\"som](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-4-20250227-8178477.webp\" "\\"\\"")
<\/p>\nWhy TAM SAM SOM Matters<\/strong><\/h2>\n
How to Use a TAM, SAM, and SOM for Your Business<\/strong><\/h2>\n
Step 1. Define your market.<\/strong><\/h3>\n
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Step 2. Use a TAM calculation to find the total market size.<\/strong><\/h3>\n
Step 3. Use a SAM calculation to find the size of your potential market.<\/strong><\/h3>\n
Step 4. Use a SOM calculation to find your potential market share.<\/strong><\/h3>\n
Step 5. Identify opportunities and challenges.<\/strong><\/h3>\n
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TAM, SAM, and SOM Template<\/strong><\/h2>\n
Total Addressable Market (TAM) Calculation<\/strong><\/h3>\n
![\"tam](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-5-20250227-7690004.webp\" "\\"\\"")
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Example TAM Calculation<\/strong><\/h4>\n
Serviceable Addressable Market (SAM) Calculation<\/strong><\/h3>\n
![\"sam](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-6-20250227-5922320.webp\" "\\"\\"")
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Example SAM Calculation<\/strong><\/h4>\n
![\"som](\"http:\/\/nurseagence.com\/wp-content\/uploads\/2025\/02\/tam-sam-som-7-20250227-8338060.webp\" "\\"\\"")
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