TAM, SAM and SOM

Investors do not fund "the AI market." They fund a company that can sell a product to a countable set of buyers at a price those buyers will pay. TAM, SAM and SOM turn that claim into three nested dollar figures — always your revenue, not industry spend or the size of a social problem.

The big idea

Picture a city of restaurants. TAM is every restaurant that might ever buy your reservation tool. SAM is the ones your current product can serve — same language, same payment stack, same geography. SOM is the share you can actually win in the next few years given sales capacity and competitors.

The analogy breaks when the "city" is still forming. Then you size the spend you displace (headcount, incumbent tools) and say the category is emerging.

Walking through it

For B2B SaaS:

TAM ≈ (number of potential customers) × (annual contract value)

Total addressable market (TAM) is the annual revenue if you owned 100% of the market you compete in.

Serviceable addressable market (SAM) cuts TAM to what today's product, channel and constraints can serve: language, compliance, company size, cloud vs on-prem, US-only vs global. A CI tool that only works with GitHub Actions is not addressing every engineering org on earth.

Serviceable obtainable market (SOM) is the near-term capture of SAM. It should match the revenue plan. If SOM says $80M in year 5 and the financial model says $12M, one of them is fiction.

For a marketplace, investors often want both a GMV TAM (dollars flowing through the category) and a revenue TAM (GMV × take rate), because the company only keeps the take. See GMV and take rate.

Common mistakes

• Stating TAM as problem size. "Americans waste $1T on healthcare" is not revenue you can collect.
• Leaving SAM ≈ TAM. If the filters do not cut the number, they are not real filters.
• Mixing currencies. Global IT spend is not your ARR.

Check yourself

1. Your product only sells in the US and only to GitHub shops. Which number shrinks? SAM — those are serve-now constraints, not "someday" TAM.
2. Year-5 SOM is $80M and the model is $12M. What is wrong? One of them is fiction. SOM and the plan must sit in the same order of magnitude.

Key takeaways

• TAM, SAM and SOM are nested revenue opportunities, not headcounts.
• TAM is all relevant customers × your price. SAM is who you can serve now. SOM is who you can win soon.
• Marketplace slides need GMV and net-revenue TAM labeled separately.
• SOM must agree with the revenue plan.

Further learning

Next, build the number from countable customers in bottom-up market sizing.