TAM, SAM, SOM: Calculate Your Market Size (With Templates)

Why Market Sizing Matters for Fundraising

VCs ask one question before almost anything else: “What’s your market size?”

Why? Because they’re not betting on your product. They’re betting on the market opportunity. A perfect product in a ₹100 crore market is worth less than an okay product in a ₹10,000 crore market.

This is where TAM, SAM, and SOM come in. These three metrics tell a complete story:

• TAM: How big is the opportunity if you execute perfectly?
• SAM: How much of that opportunity can you realistically reach?
• SOM: How much can you actually capture in the next 3-5 years?

Get these numbers wrong, and VCs won’t take you seriously. Get them right, and you’ve told a data-driven story that investors understand.

TAM, SAM, SOM Definitions (Clear Breakdown)

Let’s start with clear definitions that VCs actually use:

TAM: Total Addressable Market

The total revenue opportunity available in the market if you captured 100% of customers and faced zero competition. It’s the “if everything goes perfectly” number.

Think of it as: “If every person on Earth who could possibly want this product bought from us at full price, how much revenue would we make?”

SAM: Serviceable Addressable Market

The portion of TAM that you can realistically reach with your product, distribution, and business model. It accounts for geography, pricing, channels, and competition.

Think of it as: “Given our product, resources, and go-to-market strategy, which part of the TAM can we actually serve?”

SOM: Serviceable Obtainable Market

The realistic market share you can capture within SAM in the next 3-5 years, given competition, your execution, and market conditions.

Think of it as: “What’s a realistic market share we can actually win?”

The Relationship Between TAM, SAM, SOM

Three Methods to Calculate Market Size

There are three standard approaches to calculating TAM. Each has strengths and weaknesses. Most founders use a combination.

Method 1: Top-Down Approach (Fastest, Less Accurate)

Start with total market size from industry reports, then segment down to your niche.

Steps:

1. Find total market size from reports (Gartner, Forrester, Statista, IMARC Group)
2. Identify what percentage is your target segment
3. Multiply the two

Method 2: Bottom-Up Approach (Slower, More Accurate)

Count actual potential customers, multiply by average revenue per customer. Uses first-party data.

Steps:

1. Estimate total addressable customers (use census data, industry reports, surveys)
2. Calculate average annual revenue per customer (ARPC) – what they’d pay annually
3. Multiply

Method 3: Value Theory Approach (For Disruption)

Calculate based on the value you deliver, not market size. Useful when you’re creating a new category.

Steps:

1. Calculate value created (cost savings, revenue generated, time saved)
2. Estimate willingness to pay (% of value saved)
3. Count potential customers
4. Multiply

Which Method to Use?

What VCs Look For in Market Sizing

Market sizing isn’t just about the number. It’s about what that number signals to VCs.

VC Evaluation Criteria (In Priority Order)

1. TAM Size: Is it big enough? Minimum TAM: ₹1,000 crores for Series A. Below that, most VCs pass.
2. Realism of Assumptions: Are your assumptions defensible? Can you back them up with real data?
3. SAM Clarity: Do you understand which segment you’re targeting? Vague “total market” talk signals immaturity.
4. SOM Ambition + Reality: Is your 5-year revenue goal achievable? Too conservative (0.01% market share) signals weak execution belief. Too aggressive (20% market share) signals unrealistic thinking.
5. Market Growth: Is the market growing? VCs prefer 10-15%+ annual growth. Flat/shrinking markets are harder to succeed in.

Red Flags VCs See

• TAM under ₹500 crores (not big enough to fund)
• TAM number with no sources or methodology (“The market is ₹10,000 crores” – where’s the evidence?)
• Including TAM that’s not addressable (“Our market includes everyone on Earth” – not realistic)
• SOM that’s 10%+ market share in year 3 (only true giants achieve this)
• Assuming zero competition (Mailchimp, Stripe, Figma, etc. exist)

How VCs Actually Evaluate Your SOM

VCs work backwards from your SOM to evaluate whether the business model works:

VCs evaluate whether you can hit your SOM with:

• Your sales team size (implied CAC)
• Your product roadmap (does it support scale?)
• Your market positioning (vs competitors)
• Market growth rates (is TAM actually growing?)

Real Startup Examples (With Numbers)

Example 1: B2B SaaS – Recruitment Platform for D2C

Company: Imagine a recruitment automation platform targeting D2C brands in India.

Example 2: E-commerce Analytics – Larger TAM

Company: Analytics platform for e-commerce stores globally.

Templates and Tools for Market Sizing

Template 1: Simple TAM, SAM, SOM Calculator (Excel/Sheets)

Data Sources for Market Research

Pro Tips for TAM, SAM, SOM Presentations

• Show your methodology explicitly. “We used bottom-up approach: 20M stores × ₹36,500 ARPC”
• Include sources. “Source: Statista 2024 E-commerce Report” not just a number
• Segment your market. Show different customer types have different spend (SMB vs Enterprise)
• Compare to competitor SOM. If competitors target same market and have 5% share, 2% is realistic for you
• Show market growth. TAM growing 15%+ annually is more valuable than flat market
• Address total addressable opportunity, not just revenue. Include partnerships, ecosystem plays

What to Avoid

• Vague TAM (“The market is huge”)
• TAM that includes non-customers (“Everyone needs productivity” – but not everyone will buy from you)
• Assuming zero competition (acknowledge Stripe, Mailchimp, etc.)
• SOM that’s unrealistic (10%+ market share in 3 years is unicorn territory, not normal)
• Conflating TAM with your company’s potential (TAM is market, your SAM/SOM is more realistic)