TAM is the total demand for your product across the whole market, SAM is the part of that market you can serve, and SOM is the part of SAM you can realistically win. Each one sits inside the one before it, so TAM is the biggest number and SOM the smallest.
CFI defines total addressable market as the overall revenue opportunity available if you achieved 100% market share, calculated as estimated annual revenue. SAM, the serviceable available market, is the target market your products serve. SOM, the serviceable obtainable market, is the percentage of SAM you can realistically achieve. HubSpot adds the reason SOM exists: unless you're a monopoly, you can't capture 100% of your SAM.
TAM, SAM and SOM at a glance
These examples are HubSpot's, built around a luxury apparel brand. The dollar figures are its examples as of October 2026.
| Term | Plain meaning | How it's calculated | HubSpot's example |
|---|---|---|---|
| TAM | Whole market demand | Customers in the market x average annual revenue per customer | 27.79 million x $2,500 = $69.47 billion |
| SAM | The part of TAM you can serve | Customers you can reach x average annual revenue | 20 million x $2,500 = $50 billion |
| SOM | The part of SAM you can win | Last year's market share x this year's SAM | 0.0125 x $50 billion = $625 million |
HubSpot describes SAM as the size of the TAM you can reasonably target given limits such as specialisation or geography. That's different from a target market, which is the group of people you're selling to. SAM puts a revenue figure on that slice.
Three ways to calculate TAM
CFI lists three methods:
- Top-down. Start with a large known population and narrow it down using industry research.
- Bottom-up. Build the figure from primary research and your own pricing and usage data.
- Value theory. Estimate the value your product gives customers and how much of it your pricing can capture. CFI says this is useful for new products.
CFI's top-down example, which it states as assumptions for illustration only, sizes the market for accounting software. Of 1 billion businesses worldwide, 30% lack premium accounting software, which is 300,000,000. Of those, 90% employ an in-house accountant, leaving 10% x 300,000,000 = 30,000,000. At $100 per year, that's a $3 billion TAM.
CFI calls bottom-up a reliable method because it rests on primary market research and lets you explain why you chose certain segments. HubSpot's bottom-up formula is TAM = total customers in the market x average annual revenue per customer. Its luxury apparel example starts from about 54.5 million US households with income of $100,000 or more and arrives at 27.79 million potential customers, which at $2,500 average annual spend gives a $69.47 billion TAM.
Top-down or bottom-up? Use both
HubSpot recommends starting top-down to see the broader opportunity, then checking it with bottom-up numbers from your own business. If the two land close together, you can be more confident. If they're far apart, dig deeper before you build a plan on either.
How to work out TAM, SAM and SOM in five steps
- Define the market: the product, the audience, the geography and the problem you solve.
- Estimate TAM top-down for the big picture.
- Rebuild TAM bottom-up from customer counts and prices.
- Narrow it to SAM using your real limits, such as specialisation or region.
- Calculate SOM from your market share and the SAM.
The catch: SOM is the number you plan on
TAM is the figure everyone quotes in a pitch, but SOM is the only one you can build a budget on. HubSpot says SOM is most useful for short-term growth targets, budgeting and competitive strategy, and warns that a SAM that's too big inflates your SOM.
HubSpot's SOM method is simple: divide last year's revenue by last year's SAM to get your market share, then multiply that share by this year's SAM. In its fictional example, $500 million of revenue divided by a $40 billion SAM gives a share of 0.0125, and 0.0125 x $50 billion = $625 million. That share of 0.0125 is one and a quarter per cent. A new business has no last year to divide by, so it has to estimate its share instead.
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CFI's European example shows the nesting in a real market, using 2014 figures. Consumer spending on food, estimated at 200 billion euros, is the TAM. The alcoholic drinks industry, which served 49 billion euros of that, is the SAM. The section of that industry one manufacturer serves is the SOM.
Why the numbers matter
HubSpot says ignoring these figures can lead you into a market too small to attract investors, or to a revenue goal you'll never hit. CFI says financial models should sanity-check a forecast against the size of the market, building up from market size to addressable market, to customers, to revenue. This is also why market research matters before you spend: every number in the table rests on it.
Where I come in
I work with SaaS marketing teams and small businesses that need to size a market before they spend on it. That means agreeing a realistic SAM, building the bottom-up numbers from what customers pay and turning SOM into a marketing target you can track. You can see how I work on my work with me page.
My verdict on TAM, SAM and SOM
TAM impresses investors. SOM pays your bills. Plan on SOM, sense-check it against both top-down and bottom-up figures, and treat any TAM in the billions with healthy suspicion until you can explain every step that got you there.
Frequently asked questions
What does TAM SAM SOM stand for?
Total addressable market, serviceable available market and serviceable obtainable market. Each is a smaller slice of the one before it.
How do you calculate TAM?
HubSpot's bottom-up formula is total customers in the market x average annual revenue per customer. CFI also describes top-down and value theory methods.
How do you calculate SOM?
HubSpot divides last year's revenue by last year's SAM to get market share, then multiplies that share by this year's SAM.
Should I use top-down or bottom-up?
HubSpot recommends both: start top-down for the broad picture, then validate with bottom-up numbers from your own business.
