Market Sizing: TAM, SAM, and SOM
How to calculate your market potential in a way that makes sense to funders.
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The Three Layers of Your Market
Funders want to see that you've done the math. They use three acronyms to understand your potential:
1. TAM (Total Addressable Market)
The total revenue opportunity if you had 100% market share with no competitors. Example: All coffee drinkers in South Africa.
2. SAM (Serviceable Addressable Market)
The portion of the TAM that you can actually reach with your current product and geographical constraints. Example: Coffee drinkers in Johannesburg who prefer specialty beans.
3. SOM (Serviceable Obtainable Market)
The portion of the SAM that you can realistically capture in the next 1-3 years. Example: 5% of the specialty coffee drinkers in Johannesburg.
⚠️ Common Mistake: Don't just say "The market is R1 Billion and we only need 1%." Funders hate this "1% myth." Instead, build your SOM from the bottom up based on your marketing budget and sales capacity.
How to Calculate SOM (Bottom-Up)
- How many sales people do you have?
- How many leads can they talk to per month?
- What is your conversion rate?
- Multiply these to get your SOM.
💡 Funder Tip: A realistic SOM shows you understand your operational limits. A SOM that is too large suggests you don't understand how hard it is to acquire customers.