Market Sizing: TAM, SAM, SOM

Even if an opportunity has high RICE score, is it worth pursuing from a business perspective? To answer this, you must size the market. This tells you the maximum potential revenue your product can capture.

The Sizing Stack

• TAM (Total Addressable Market): The entire global market demand for your product category if you captured 100% share (e.g., All businesses globally that use email marketing software).
• SAM (Serviceable Addressable Market): The portion of the TAM that fits your specific target profile, technology, and geography (e.g., Small businesses in North America that use email marketing).
• SOM (Serviceable Obtainable Market): The realistic portion of the SAM that you can capture in the next 3-5 years, accounting for competition and sales capacity.

Top-Down vs. Bottom-Up Sizing

There are two ways to calculate these numbers:

1. Top-Down (Avoid): Taking broad industry analyst reports (e.g., Gartner states the email market is $10B) and guessing your share: "We will capture 1% of this, so our market is $100M." This is unreliable and lacks logical foundation.
2. Bottom-Up (Recommended): Starting with primary data, such as your price point and target customer count:
   Market Size = Number of Target Accounts × Price per Account per Year

Example: If you are building billing software for dental clinics in the US:

• There are 200,000 dental clinics in the US (Target Accounts).
• Your software costs $150/month ($1,800/year).
• SAM = 200,000 × $1,800 = $360 Million per year.
• If you target capturing 5% of this in 3 years, your SOM is $18 Million.