TAM, SAM and SOM, explained
TAM, SAM and SOM are three ways of sizing a market, from biggest to smallest. TAM is everyone who could ever use a product like yours. SAM is the part you can reach with what you’re building. SOM is the slice you could realistically win in the next few years. Investors ask for all three. Product managers should care most about the smallest one.
What each one means
TAM: total addressable market.
Everyone with the problem, anywhere, if you had no competition and unlimited reach. It’s the ceiling, not a plan.
SAM: serviceable addressable market.
The part of the TAM your product, price and channels can serve. If you only sell in the US, or only on phones, or only in English, that’s where the TAM shrinks to the SAM.
SOM: serviceable obtainable market.
The share of the SAM you could win in the next few years, given the competition and how fast you can grow. This is the number a plan should rest on.
Top down or bottom up
Top down starts with a big published number and cuts it by percentages. It’s fast, and it’s easy to fool yourself with, because every cut is a guess.
Bottom up starts with customers you can count: how many you can reach, how many might buy, and what they’d pay. It’s slower and more believable, because each number is something you could check.
What a real pitch looked like
When the Owlet founders pitched their baby monitor in 2013, they started with a TAM-style fact: about 4 million babies are born in the US every year. Then they narrowed it with things they’d checked. They called 33 baby stores and learned most monitors sold for $200 to $250, which told them who was already buying and at what price. The big number got attention. The checked numbers made it believable.
A big market doesn’t mean anyone wants it
TAM tells you how many people have a problem. It says nothing about whether they want your answer to it. Plenty of products aimed at huge markets found out nobody would switch. Size the market, but prove the value first.
Questions people ask
What’s the difference between TAM and SAM?
TAM counts everyone who has the problem. SAM counts only the ones your product can serve, given where you sell, what you charge and what platforms you’re on. SAM is always smaller, and it’s the more honest number to plan around.
Do I need TAM, SAM and SOM for a school project or a small business?
Not all three. What helps is the bottom-up version of the smallest one: how many people you can reach, how many might buy, and what they’d pay. That number tells you whether the idea can pay for itself.
Learn it by doing it
The app teaches this in Module 11, Frame It Before You Build It, where the crew sizes a problem before solving it.
Product Management is a course for curious teens, in five-minute lessons with something to play with in every one. Part I is free on iPhone, iPad and Android. No account, no ads.
Keep going
What is an ideal customer profile?
Who gets the most from your product, and why the user isn’t always the buyer.
What is a value proposition?
Why someone would pick you over what they do today, in one sentence.
The baby sock that found its market, then ran into the FDA
A baby monitor that proved its demand for $220, then spent five years at odds with the FDA.