Ever walked into a new marketing or product role, opened up the revenue goals for the year, and thought, There’s no way we’re hitting this?
Me too.
Maybe the sales team is being asked to close 500 deals in a year, but your ICP is so niche that there are barely 600 companies in the world that even qualify.
Maybe leadership is convinced that a new outbound campaign will generate millions in pipeline, but there’s no data to show if there are enough companies in the market to make that possible.
In those moments, having a solid handle on TAM, SAM, and SOM is one of the few ways to bring the conversation back to reality.
These acronyms get thrown around all the time… but if we’re being honest, most people—at every level—don’t fully understand the terms or how to calculate them.
The good news is that these numbers aren’t as complicated as they seem. And once you get a handle on them, you’ll be able to sanity-check your strategy before you waste time, effort, and money chasing something completely unrealistic.
In this post:
Explaining TAM, SAM, and SOM
- TAM (Total Addressable Market) – The dream scenario. If every single company that could use your product actually did, this is how big the opportunity would be.
- SAM (Serviceable Addressable Market) – Now let’s get real. This is the slice of the TAM you can actually sell to today, based on your product’s capabilities, your go-to-market motion, and other practical constraints.
- SOM (Serviceable Obtainable Market) – The realistic market. Out of your SAM, this is the subset of companies that are actively looking for a solution and could realistically buy in the next 12 months.
Illustrating with an example
Let’s make this real with an example. We’ll follow Toward, a fake SaaS company that sells an AI-powered marketing website CMS built for tech startups.
Toward has set a goal of $10M in new ARR this year, but no one has checked whether the market can actually support this. (Sound familiar?)
I’ll walk through this example in TAM, SAM, and SOM calculations (and go further to sanity-check the revenue plan) to bring strategy back to reality.
How to go from TAM to SOM
Step 1: Find your universe (TAM)
TAM is your total potential market: every company that could theoretically use your product, regardless of whether you can sell to them today.
It’s easiest to use the firmographics from your ICP to find your TAM.
- Company size – Who benefits most from your product? (e.g., 50-1,000 employees)
- Revenue range – What company scale makes sense? (e.g., $10M+ ARR)
- Geography – Where are your potential customers located? (e.g., North America and Europe)
- Industry – Who actually needs your product? (e.g., tech companies with marketing teams)
How to Calculate TAM:
Pull lists from Apollo.io, LinkedIn Sales Navigator, or Crunchbase. These tools let you filter by firmographics like company size, revenue, and industry.
The final count is your TAM—the number of potential customers if every single one of them bought your product.
Example: Toward’s TAM
Toward defines its ICP as tech companies with 50-1,000 employees. They find 40,000 companies globally that fit these parameters. That’s the TAM.
Step 2: Start to incorporate reality (SAM)
If TAM is your theoretical market, SAM is your realistic one—the companies you can actually sell to and support today.
Product Fit:
- Are you a good fit for every company in your TAM?
- Remove companies that don’t use the necessary supporting tech. (e.g., if your product integrates only with Salesforce, remove companies using other CRMs.)
- Remove companies that don’t experience your targeted pain points, or don’t have specific teams or roles in the business
Go-To-Market Fit:
- Do you have the resources to target every segment?
- If you have a high-touch enterprise sales model, remove companies that expect a self-serve experience.
- Exclude segments that don’t have the budget or business need for your solution.
Unfortunately, this kind of data isn’t something you can just filter for in a database.
You’ll need to make informed assumptions and use additional data sources to refine your SAM:
- Your sales team and customer success managers likely have a good sense of which companies are a fit and which aren’t… and importantly, how many
- Platforms like BuiltWith help identify which companies use specific tech stacks.
Combining these approaches will help you determine a best guess of your SAM, even if it’s just a rough percentage.
Example: Toward’s SAM
Toward realizes they can only serve companies using HubSpot or Salesforce as their CRM. After filtering, their TAM of 40,000 drops to 7,500 companies—that’s their SAM.
Step 3: Now it’s time to get real (SOM)
Now it’s time to get real.
Not every company is actively looking to buy. Your Serviceable Obtainable Market (SOM) needs to represent the companies actually in-market this year.
Most companies aren’t looking to buy or switch to a new tool every year. Try to estimate a percentage of those that might be.
If in doubt, assume that ~20% of your SAM is actively evaluating solutions in a given year.
If your demand gen team is using tools like Bombora, 6sense, or G2 Intent data, you might be able to see who is actively searching for software categories and use that too.
Example: Toward’s SOM
With a SAM of 7,500 companies, Toward estimates that ~1,500 (20%) are actually in-market this year. That’s their SOM.
Working SOM into a revenue plan
Now for the fun part.
Once you have a realistic market size, you need to validate whether your revenue goals align with what’s actually possible.
It’s one thing to say there are enough companies out there; it’s another to ensure your funnel can realistically convert them into customers at a rate that makes sense.
Step 4: Model the funnel
To make sure your revenue targets are grounded in reality, follow these steps:
1. Estimate your win rate
- Look at your historical SQL-to-Closed-Won conversion rate. If you don’t have historical data, use industry benchmarks. For B2B SaaS, 5-10% is typical.
- Assume a 10% win rate for this example.
2. Work back from revenue goals
- Define your ARR goal. Let’s say it’s $10M.
- Determine your ACV (Average Contract Value).
- If your typical deal size is $50K, then you need 200 closed-won deals.
3. Map out your funnel, step-by-step
Each stage of the funnel has a drop-off. You need to work backward to see how many leads you’ll need at the top of the funnel.
- If your SQL to Closed-Won rate is 10%, you need 2,000 SQLs.
- If your MQL to SQL rate is 20%, you need 10,000 MQLs.
- If your Lead to MQL conversion rate is 5%, you need 200,000 leads.
- If your cost per lead is $50, then you need a $10M marketing budget: probably way too high for your current resources. That’s just bad economics.
4. Adjust for Reality
If the numbers don’t add up, something has to change:
- Can you increase ACV? If you raise prices or upsell, you need fewer deals.
- Can you improve conversion rates? If you optimize SQL-to-Closed-Won from 10% to 15%, you need fewer leads.
- Can you lower cost per lead? If you improve targeting, partnerships, or inbound strategy, you might reduce the size of the marketing investment.
5. Extend even further
Even after adjusting, you can go a level deeper:
- Sales velocity: How long does it actually take to close deals? If deals take 6+ months, can you realistically close 200 in a year?
- Pipeline coverage: Does your pipeline have enough volume at each stage to meet targets? Most companies do a 1:3 ratio… but sometimes you’ll need 1:5 coverage in trying times.
- Churn & Expansion: Are existing customers churning, or do you need to drive expansion revenue to hit your ARR goal? Understanding the balance between retention, expansion, and net-new acquisition is critical to setting the right revenue strategy.
Recap: Toward’s funnel is not good
Toward’s conversion rates mean they’d need 200,000 leads to hit their revenue target.
Their budget isn’t even close to $10M, so they need to rethink expectations or adjust strategy.
Tip: It’s not about the actual numbers
Understanding these numbers helps prevent wasted time, effort, and budget on chasing opportunities that don’t exist. It gives you a framework to set realistic targets and build sustainable go-to-market strategies.
But the real power of TAM, SAM, and SOM isn’t just about calculating them. It’s about using these to have tangible, reasonable and strategic conversations about your go-to-market strategy.
If your SOM doesn’t support your revenue goal, it’s a red flag.
You either need to rethink your pricing, your win rates, or your entire approach to customer acquisition. This could mean anything from expanding into new verticals, raising prices, going up-market, or fixing your leaky sales funnel.
Before you commit to that aggressive growth plan, step back. Run your TAM, SAM, and SOM numbers. See if the math actually works. If it doesn’t, adjust now—before pipeline targets are missed, budgets are wasted, and your boss starts scrambling for answers.
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