Market size: Understanding TAM, SAM and SOM

Estimating market size is challenging and messy. In most cases there is no right or wrong. Having said this, it is critical to have assumptions that are defendable and based on credible sources and/or transparent calculations. If you don’t have this you will lose credibility with investors.

TAM, SAM and SOM have become the standard way to look at market size. TAM is the “Total Available Market”, SAM the “Serviceable Available Market”, SOM the “Serviceable Obtainable Market”. 

TAM is typically considered the global market size for your product, SAM the market in the geography that you focus on first, and SOM the market segment you focus on first within your geography.  


You are developing an app which helps patients who have migraine. So how do you calculate your market size?


This is the existing global market for the treatment of migraine (note: the market for MIGRAINE, not the total healthcare market or the total digital health market – you need to be specific here). Do internet research to find a credible source for your market segment. Let’s say it is USD 10bn, driven by the pharmaceutical industry. 

Do a rough cross-check what this could mean for your own solution. 1bn people around the world have migraine. Do you feel that an average person would pay an average of USD 1/mth for your app? You assume that it could potentially be much more in developed countries, but maybe less in developing countries. So a TAM of USD 10bn sounds defendable.


Considering that you are a company based in the UK, you decide to start your business in your home market. Do the same thing as above – researching the specific market you address first and cross-checking whether the number makes sense for your own product. Let’s assume the current market is USD 500m.


Considering that it will take years until your solution will be paid by the insurance system, you have decided to focus on the self-paid market first and go B2C. You estimate that this market segment is around 10% = USD 50m, backed up by a survey you have done with 100 Brits who have migraine.


Make one slide where you show TAM, SAM and SOM, incl. references and your assumptions. While an investor may challenge certain assumptions, you have a solid basis for discussion, and demonstrate that you have a clear view on your market.

How important is it to show a large market?

Investors typically want to see a TAM of at least USD 1bn. Considering that you can get 20% of this market over time (USD 200m) and reach a revenue multiple of 5x, this can make your company a unicorn.

But while a large market is generally positive, you can get lost in it. And they are usually ultra competitive.

So it is crucial to target a very specific segment first, and grow your company from there. Don’t be afraid if your SOM is only USD 10m – this is totally ok if you have a killer product for this segment! Once you reach 7-digit revenues it will be easy to grow to a next level.

Last but not least: Market sizing is highly dynamic. Nobody will prevent you moving from the migraine market to other medical markets once you have 100m revenues in five years – but it would definitely be wrong to be unspecific at the beginning.

What about market growth?

You knew it: Investors do not only love substantial market size but also high market growth. Growth means room for new entrants. Stagnating or even shrinking markets typically means fierce competition from existing players. So if the market is growing you definitely want to highlight this in your market slide.

Creating new markets

Some of the most successful startups in the world have created their own markets. At the same time you will hear investors say “if there is no market there is no business”. So make sure you have at least some market references (e.g., the existing pharma market even if you go for a digital product as described in the example above). 

In the few cases where there is no existing market at all you will need bottom up proof points – e.g., local traction showing that people are willing to use/pay for your product. On this basis you can extrapolate to a global market size.

Further reading

Understanding the market size for your product is crucial for the selection of the right investor categories. Phase 6c provides further information about them. And Phase 1 provides insights about other key aspects of your startup that are crucial for investors.