A common way to focus your Go-to-market is through the TAM/SAM/SOM approach. The outcome will be a close match to your strategic part of the market where you should strive to get Product Market Fit. So how do you use this to size your Addressable Market?
What is TAM SAM SOM?
TAM SAM SOM is a market analysis framework that breaks down your market opportunity into three distinct layers:
- TAM (Total Addressable Market): The entire market demand for your product or service
- SAM (Serviceable Addressable Market): The portion of TAM you can realistically target
- SOM (Serviceable Obtainable Market): The share you can realistically capture
This approach originated in venture capital and has become the gold standard for market sizing in B2B SaaS companies.
TAM vs SAM vs SOM: Understanding the differences
TAM vs SAM
The key difference between TAM vs SAM lies in scope and realism:
- TAM represents the theoretical maximum if you had unlimited resources
- SAM considers your actual capabilities and constraints
TAM vs SOM
TAM vs SOM shows the gap between possibility and reality:
- TAM is the total opportunity
- SOM is what you can actually achieve with your current resources
SAM vs SOM
SAM vs SOM differentiates between what you could serve versus what you will serve:
- SAM includes all segments you're capable of serving
- SOM focuses on the segments you'll prioritize and win
What is TAM (Total Addressable Market)?
TAM represents your Total Addressable Market. This is the entire market you’re servicing, the solution you provide, and the audience that can benefit from your solution. Based on what your product does, or service is, TAM is the entire market you could target if you had unlimited time and resources. If you did not have any restrictions, what would that market look like? For instance, for an apple grower, their TAM would be the market for food where they compete with other alternative foods. Grocery stores, restaurants, chefs, nutritionists, school lunch programs - any and everybody who could choose to consume an apple in some form vs. an alternative.
Rather than calculating the size of your TAM yourself, you can turn to one of several proxies. There are 98 Magic Quadrants from Gartner and 177 Wave Reports from Forrester. There are also market research reports such as Crunchbase and Guidestar.
What is SAM (Serviceable Addressable Market)?
SAM represents your Serviceable Addressable Market, the share of the market to focus on based on what you do best. Your SAM is how you’re able to address the specific needs of some parts of this market better than others. We often call this Product Market Fit (PMF).
To find out where you have best seen SAM, see if there are places in that market where your existing customers are loyal to you, buying more, or are extremely satisfied with what you’re providing.
Another way to think about SAM is where do you stand a higher chance to dominate a beachhead. Where are you faster, better, or cheaper than your competitors? Where can you sell the easiest? Where does your solution fit best? This could be a specific vertical industry where you have vast experience. Maybe it is in a region of the country where you are well known, or that you know well. Perhaps it is marketing to businesses of a certain size.
One of the ways you can help define your serviceable addressable market is by determining which of your current customers are the most loyal. Who has vouched for you in a customer testimonial? Who by virtue of their return on investment presents a great case study?
I also like to look at negative churn. Churn represents those customers who at some point leave. Negative churn equates to customers who not only stay, but who buy more and more. The revenue per those customers is growing.
Customer satisfaction or net promoter scores (NPS) are another good indicator of a market you are clearly able to service. People who refer you to others, customers who have given excellent word-of-mouth-type references to other customers or prospects that became customers. All these things can help you winnow your TAM to a more manageable SAM and focus on winning a beachhead.
What is SOM (Serviceable Obtainable Market)?
SOM is your Serviceable Obtainable Market, the part of the market that you can not only service, but that you want to service, and that you can service well. Through special product features and benefits, technology, price, or other unique aspects, you control if not own the market. SOM is based on what only you can do.
Your SOM is the obtainable market for your organization. If you have limited resources, your SOM is the most attainable, low-friction path toward success. Your SOM should have the best product-market fit, the happiest customers and the best outcomes overall.
SOM can be defined as the prospect mix that gives you the easiest sales with limited resources and time, the best technographic fit and the smoothest decision path to yes. In what part of the market is the friction to gain traction the lowest? What are the easiest sales journeys with the minimal number of decision makers or potential blockers? Which customers buy the largest deal size at the start of your relation? You can again look at KPIs like churn, ARPU/ARR expansion and NPS scores to help you find and confirm your SOM.
Your obtainable market is that which you can dominate. There is less competition, fewer entry barriers, and a good regulatory fit. You can generate the greatest amount of revenue for the least amount of effort. Factors may include what vertical segments would be easiest to sell to. Who out there is the best fit for your product or service? What markets have less of a competitive environment?
In addition to these external questions, there are internal dependencies as well. How do you plan to execute your marketing campaign? What is your capacity from a sales and service perspective? Can you handle everything in-house or will you have to partner with outside resources? How will that affect profitability?
Let us put this exercise into a visual framework. In the following two-by-two matrix the X axis represents your ability to service a part of the market with your current capabilities. The Y axis represents ease of servicing the market.
Looking at this grid, it becomes obvious that the ideal place to focus your efforts are with customers that are easy to reach and willing to buy, and that provide you substantial market penetration. That fact that you can service—or sell—to someone does not mean you should. In the time it takes you to sell to one SAM customer, you might be able to close deals with three SOM customers.
How to Calculate SOM
SOM calculation factors:
- Competitive landscape analysis
- Your differentiation strength
- Sales capacity and timeline
- Marketing reach and effectiveness
- Customer acquisition cost vs. lifetime value
Methods for SOM calculation:
- Market share approach: Estimate realistic market share × SAM
- Bottom-up approach: Sales capacity × conversion rates × deal size
- Comparable company approach: Look at similar companies' market penetration
TAM SAM SOM Framework: Step-by-Step Implementation
Step 1: Define Your TAM
- Research total market size using multiple sources
- Validate with industry reports and expert interviews
- Consider future market growth projections
Step 2: Narrow to Your SAM
- Apply realistic constraints
- Focus on segments where you have advantages
- Consider regulatory and operational limitations
Step 3: Calculate Your SOM
- Analyze competitive positioning
- Assess your go-to-market capabilities
- Set 3-5 year market share targets
Step 4: Validate with Data
- Test assumptions with customer interviews
- Analyze conversion rates and sales cycles
- Monitor actual performance vs. projections
Can I win this market?
If you cannot answer the question, “Can I win this market?”, then your market may still be too big. It might make sense to winnow even more. Make it more precise and focused until you can really nail that niche. This is also sometimes called the ‘smallest viable market’ that you can own.
Learn to say no. Winnowing means you have to say—and get comfortable saying—no. Say no to prospects that fall outside your ideal customer quadrant on your SOM map. Saying no becomes easier when you know what you are saying yes to, when you understand what you are getting in return.
Saying yes to your ideal-quadrant prospects gives you the best opportunity to gain the deepest market penetration with the least amount of effort. Any other prospect outside that ideal quadrant will be a distraction and cannot be serviced as well. This should form the basis to confirm the size of your market for your B2B SaaS Go to Market Plan.