How to Calculate TAM, SAM, and SOM for SaaS Growth

Understanding market size is crucial for any business aiming to thrive or scale. Whether you’re a startup or an established company, accurately gauging your market potential is key to setting realistic revenue goals and attracting investors. Let's explore how to calculate Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM), and why these metrics matter.

What are TAM, SAM, and SOM?

TAM: Total Addressable Market

Total Addressable Market (TAM) represents the total revenue opportunity available if your product or service could achieve 100% market share. It’s a broad measure of potential growth and market interest.

SAM: Serviceable Addressable Market

Serviceable Addressable Market (SAM) is the portion of TAM that fits within your business’s scope. This considers factors like geographic, demographic, and economic limitations, defining a more realistic target segment within the broader market.

SOM: Serviceable Obtainable Market

Serviceable Obtainable Market (SOM) is the segment of SAM that your company can realistically capture, considering current competition, resources, and market awareness. It’s the most granular of the three metrics, reflecting what you can achieve in the short term.

Calculating TAM, SAM, and SOM

TAM Calculation

To calculate TAM, you perform a bottom-up analysis using the formula:

TAM = (Number of Accounts in Market) × (Annual Contract Value)

Example: If there are 6,000 potential accounts and your annual contract value (ACV) is $1,500, your TAM is:

6,000 × 1,500 = 9,000,000 USD

SAM Calculation

SAM is calculated by narrowing down your TAM to accounts you can actually serve, based on your business model and capabilities:

SAM = (Target Segment of TAM) × (Annual Contract Value)

Example: If you can only serve 3,333 accounts out of the 6,000, with the same ACV of $1,500, your SAM is:

3,333 × 1,500 = 4,999,500 USD

SOM Calculation

SOM is derived by estimating your market share within SAM:

SOM = (Last Year’s Market Share) × (This Year’s SAM)

Example: If last year’s market share was 37.5% with a SAM of $4M, and this year’s SAM is $5M, your SOM is:

0.375 × 4,999,500 = 1,874,812.50 USD

Leveraging TAM, SAM, and SOM for Business Growth

Understanding these metrics helps refine your market strategy and set realistic growth targets. With Churnkey, optimizing these strategies and boosting profitability is easier than ever before.

Explore how Churnkey can help you achieve your growth goals. Schedule a demo or start a free trial to combat churn and drive success.