TAM, SAM and SOM: what they mean and how to show them to investors

TAM, SAM and SOM are three nested estimates of how much revenue a product could earn each year:

• TAM (total addressable market): revenue if every possible buyer of your kind of product bought it from you.
• SAM (serviceable addressable market, sometimes "serviceable available market"): the part of TAM your product, pricing, sales channels and geography can actually serve today.
• SOM (serviceable obtainable market): the part of SAM you can realistically win in the next few years with the team and sales capacity you plan to have.

Each one is a count of buyers multiplied by what each buyer pays per year. The three numbers matter less than the arithmetic that connects them, because the arithmetic shows whether you understand who buys and how many of them you can reach.

This page covers the definitions and how to present them to investors. For a longer walk-through with free U.S. data sources and a worked example for HVAC software, see market size research.

Why investors ask for market size

Most pitch decks have a market slide. Sequoia's guide to writing a business plan lists "market potential" as one of its sections, with the instruction: "Identify your customer and your market. Some of the best companies invent their own markets."

A market slide answers two questions for the reader. How large could this company get if things go well? And does the founder know exactly who the customer is? A large TAM with no visible arithmetic answers the first question weakly and the second not at all. A smaller, well-built estimate often does better on both.

Top-down and bottom-up estimates

There are two ways to get the numbers:

• Top-down: start with a published total for an industry and take a share of it. It is quick, but the published total often counts products and buyers that are not yours, and "we only need 1%" says nothing about how you would win that 1%.
• Bottom-up: count the buyers you could sell to, multiply by a realistic annual price, then narrow. Every input can be checked, which is why it holds up better in a pitch meeting.

Use bottom-up for the numbers on the slide. Use top-down figures, such as the revenue of public competitors, only as a rough check.

A short bottom-up example

Suppose you sell scheduling and documentation software to outpatient physical therapy clinics, priced per therapist at $50 a month, or $600 a year. The price and sales capacity below are hypothetical. The employment figures come from the U.S. Bureau of Labor Statistics profile of physical therapists, which says the occupation held about 283,700 jobs in 2025. Of those, 36% worked in offices of physical, occupational and speech therapists and audiologists, 26% in hospitals, 11% in home healthcare, 6% in nursing and residential care facilities, and 4% were self-employed.

What each step shows:

• SAM leaves out hospitals and home health because they buy software differently and a clinic-focused product would not reach them. If you plan to sell only in some states, narrow further.
• SOM comes from sales capacity, not from a percentage you picked. Here it is about 1.4% of SAM (1,440 ÷ 102,100) because two people can close only so many deals. Change the inputs and you can explain exactly why the result moved.
• The example ignores churn and price changes. Real SOM would be lower if some clinics cancel.

How to present it on a slide

• Show the formula next to each number. "283,700 physical therapists × $600 a year" is more persuasive than a circle labeled "$170M."
• Name each source and its year. Public data sets are updated on different schedules, so say which year each input is from.
• Say which input you are least sure of, and what you did to test it. Price and sales capacity are usually the guesses.
• Explain how SAM grows. If you plan to add hospitals or another country later, say so and give the step, rather than folding them into today's SAM.
• Run a rough check from the other direction. For public competitors, Investor.gov's guide to reading a 10-K explains that Item 1 describes the markets a company operates in and Item 8 contains its audited financial statements. If your SAM is many times the combined revenue of the companies already selling to that market, check your count and price, and be ready to explain why buyers would spend that much more.

Common mistakes

• Defining TAM as a whole industry. "Healthcare software" is not your market if you sell only to physical therapy clinics.
• Treating SOM as a flat percentage. Tie it to how many deals your team can close.
• Mixing units. Multiplying a count of clinics by a per-therapist price understates the market; multiplying therapists by a per-clinic price overstates it.
• Counting users who do not pay. Count the buyer you bill, and multiply by the unit you bill for.

Test the inputs you guessed

The count came from public data. The price, the number of therapists per clinic and the pace of sales are guesses until buyers confirm them. Ask clinic owners how they pay for software today, per therapist, per location or as a flat fee, and who signs. How to research willingness to pay covers price questions, and target market analysis helps if you are still choosing which market to size.

Your next step

Write your pricing unit and annual price on one line. Find the public count for that unit, multiply to get TAM, narrow to the buyers you can serve for SAM, and base SOM on how many deals your team can close in a year. Circle the two inputs you guessed and test them in five conversations.

If you do not know people in the market, Instant Expert can find people who match a description you write, such as "owners of outpatient physical therapy clinics." You review who it finds, it sends your invitations, and you pay only for calls that get booked. The directory page for sales professionals in healthcare technology is one place to find people who sell to clinics.