TAM / SAM / SOM
TAM (Total Addressable Market) is the total revenue opportunity if you captured 100% of your market. SAM (Serviceable Addressable Market) is the portion you can realistically serve. SOM (Serviceable Obtainable Market) is what you can capture in 3–5 years.
Formula
In depth
TAM calculation methods: - Top-down: industry report says $50B market → your TAM is $50B (investors are skeptical of this) - Bottom-up: 500K target companies × $200/month × 12 = $1.2B TAM (more credible)
Example for a HR SaaS for restaurants: - TAM: 660K US restaurants × $100/month = $792M/year - SAM: 200K restaurants with 20+ employees × $100/month = $240M/year - SOM: 2% of SAM in 5 years = $4.8M ARR
Investors want bottom-up TAM, not 'the global HR market is $30B.' Show your specific customer count × your price.
Real example
HR SaaS for restaurants: TAM 660K restaurants × $100/mo, SAM 200K with 20+ employees, SOM 2% = $4.8M ARR in 5 years.
Related terms
MRR (Monthly Recurring Revenue)
Monthly Recurring Revenue (MRR) is the predictable, normalized monthly revenue generated from all active subscriptions. It's the north star metric for SaaS companies.
ARR (Annual Recurring Revenue)
Annual Recurring Revenue (ARR) is the yearly equivalent of your recurring subscription revenue. It's MRR × 12 and is the primary metric investors use to value SaaS companies.
Unit Economics
Unit economics describes the revenues and costs associated with one unit of your business (typically one customer), used to determine if your business model is fundamentally profitable at scale.
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