Last updated: October 2026
Key takeaways
- TAM ≥ SAM ≥ SOM, always. Each one is a filtered subset of the one before it.
- Top-down is fast but depends on someone else’s industry number. Bottom-up is slower but uses assumptions you can defend line by line.
- Always size in the same unit (annual revenue in dollars) and state the time period.
- Use free government data (Census, BLS, SBA) for customer counts, then write down every assumption next to its source.
- A market-sizing sheet is a set of labelled inputs and formulas. It is easy to build in Excel, and easy to get wrong if you do not cross-check it.
What do TAM, SAM and SOM mean?
The three terms describe the same market at three levels of realism. They are most often used in business plans, pitch decks and go-to-market planning, and they answer one question: how big is the prize, and how much of it is mine?
| Term | Stands for | Plain-English meaning | Typical filter applied |
|---|---|---|---|
| TAM | Total Addressable Market | Annual revenue if 100% of potential buyers purchased your type of product | None beyond “could use this product” |
| SAM | Serviceable Addressable Market | The part of TAM your product, geography and sales channels can reach | Segment, location, price tier, channel |
| SOM | Serviceable Obtainable Market | The part of SAM you can realistically win in a stated period | Competition, sales capacity, budget, time |
Sources differ slightly on where competition enters. One widely read explainer, Salesforce’s TAM SAM SOM guide, lists competition as a SAM factor in its definition but applies a capture rate in SOM. A practical rule: put who you can serve in SAM, and put how much of that you can win in SOM. Whatever you choose, write the rule down and apply it consistently.
Top-down vs bottom-up: which method should you use?
| Top-down | Bottom-up | |
|---|---|---|
| Starting point | A published industry or category total | Number of customers × revenue per customer |
| How you narrow it | Multiply by percentage filters (segment, region, capture rate) | Count the customers who fit each filter, then multiply by price |
| Speed | Fast | Slower |
| Main weakness | Depends on a third-party total you cannot audit; easy to inflate | Depends on your price and customer-count assumptions |
| Best for | Early sanity check, investor-style framing | Planning, pricing, sales targets |
Use both. Top-down tells you whether the category is big enough to matter. Bottom-up tells you what you could earn. When they disagree by a factor of 5 or 10, one of your assumptions is wrong, and finding which one is the most valuable part of the exercise.
Worked example with every step shown
Illustration only. Every number below is hypothetical, invented to show the arithmetic. None of it is real market data. Replace each input with a sourced figure before using it for a real decision.
Imagined product: appointment-scheduling software for independent dental practices, sold at $1,800 per practice per year, launching in three U.S. states.
Method 1: top-down (hypothetical inputs)
| Step | Calculation | Result |
|---|---|---|
| TAM: annual U.S. spend on dental scheduling software | Assumed industry figure | $250,000,000 |
| SAM filter 1: share of that spend from independent practices | $250,000,000 × 60% | $150,000,000 |
| SAM filter 2: practices in our 3 launch states (assumed 14% of U.S. total) | $150,000,000 × 14% | $21,000,000 (SAM) |
| SOM: realistic capture within 3 years (assumed 1.5%) | $21,000,000 × 1.5% | $315,000 (SOM) |
Method 2: bottom-up (hypothetical inputs)
| Step | Calculation | Result |
|---|---|---|
| U.S. dental practices (assumed) | Given | 120,000 |
| TAM | 120,000 × $1,800 | $216,000,000 (TAM) |
| Independent practices (assumed 60%) | 120,000 × 0.60 | 72,000 |
| Independent practices in 3 launch states (assumed 14%) | 72,000 × 0.14 | 10,080 |
| SAM | 10,080 × $1,800 | $18,144,000 (SAM) |
| SOM: customers we can win in 3 years (sales capacity assumed at 150) | 150 × $1,800 | $270,000 (SOM) |
| Implied share of SAM | 150 ÷ 10,080 | 1.49% |
Cross-check
Top-down SAM is $21,000,000 and bottom-up SAM is $18,144,000. The ratio is 21,000,000 ÷ 18,144,000 = 1.16, so the two methods are about 16% apart. That is close enough to trust the order of magnitude. The SOM figures ($315,000 vs $270,000) also agree, and the bottom-up version implies 1.49% of SAM, which matches the 1.5% capture rate assumed top-down.
If the gap had been 10x, you would check the usual suspects: an inflated industry total, a price that is too high or too low, or a customer count that includes businesses that could never buy.
Note that the TAMs differ more ($250,000,000 vs $216,000,000, about 16% apart). That is normal. TAM is the least reliable of the three numbers, and SAM and SOM are the ones that should drive decisions.
Where do you get reliable data?
Use primary or government sources for counts and wages, and keep a link to each one in your sheet. Verified as loading in October 2026:
- U.S. Census Bureau, County Business Patterns (CBP): annual data on establishments with paid employees, by industry and employment size, plus payroll. The CBP page listed 2023 as the latest data when we checked. Good for counting how many businesses of a type exist in a county or state.
- U.S. Census Bureau, Nonemployer Statistics: covers businesses with no paid employees, with the number of establishments and total receipts. The Nonemployer Statistics page listed 2024 as latest. Essential if your customers include sole proprietors and freelancers, because CBP misses them.
- Bureau of Labor Statistics: the Quarterly Census of Employment and Wages counts employment and wages by county, metro area, state and industry, covering more than 95 percent of U.S. jobs per BLS. The OEWS program gives employment and wage estimates for roughly 830 occupations. Useful when your customer is defined by job role (for example, the number of accountants in a metro area).
- U.S. Small Business Administration: its market research and competitive analysis guide tells you to ask about demand, market size, location, saturation and pricing, and it lists free federal data sources including NAICS codes and Census data.
Government data is rarely a perfect match for your product, so you will usually combine it with your own judgment (for example, “share of these practices that use no scheduling software today”). Mark those judgment calls as assumptions and, where possible, test them with a few customer interviews or a small survey. The SBA guide itself recommends direct research for questions specific to your business.
Common mistakes
- The “1% of a huge market” shortcut. Saying “we only need 1% of a $50 billion market” skips the question of how you will reach those buyers. Build SOM from sales capacity, not from a hopeful percentage alone.
- Mixing units. Counting customers in one step and dollars in another, or mixing monthly and annual prices. Pick annual revenue and stick with it.
- Using revenue of the whole industry as TAM. The total revenue of an industry is not the spend on your product category.
- Ignoring sole proprietors. If CBP is your only source, you miss businesses with no paid employees. Add Nonemployer Statistics where relevant.
- Undated, unsourced numbers. Any figure without a source and year should be labelled an assumption.
- Never reconciling the two methods. Running only one approach hides errors.
- Treating SOM as a forecast. It is a bounded estimate under stated assumptions, not a promise.
How to build a TAM SAM SOM calculator in Excel
A good market-sizing workbook separates inputs from calculations so that anyone can change an assumption and watch the results update. A research assistant or analyst can build it in an afternoon. This is the layout we suggest. If you want a ready-made starting point, use our free TAM SAM SOM calculator or download the free Excel version: it has yellow input cells, live formulas, a top-down cross-check and a sanity-check percentage. The layout below is the fuller version for a serious research project.
| Sheet | What goes on it | Key formulas / features |
|---|---|---|
| 1. Inputs | One row per assumption: label, value, unit, source URL, source year, confidence (High/Med/Low) | Blue font for inputs; named ranges such as Price and Share_Indep; data validation to keep percentages between 0 and 1 |
| 2. Customer counts | Pasted extracts from CBP, Nonemployer Statistics or BLS, by NAICS code and geography | SUMIFS to total establishments by region and size band |
| 3. Top-down | Industry total, then each percentage filter in its own row | =TAM*Share1, =SAM_prev*Share2; running totals with the step shown |
| 4. Bottom-up | Customer count × price at each level | =Customers*Price; SOM from =MIN(sales_capacity, SAM_customers)*Price |
| 5. Reconcile | Side-by-side TAM, SAM, SOM from both methods | =TopDownSAM/BottomUpSAM ratio, with a flag if outside 0.5 to 2 |
| 6. Scenarios | Low / base / high cases for price, share and capture rate | Scenario selector via CHOOSE or INDEX; a small data table showing SOM under each case |
| 7. Sources log | Every link, date accessed, and what it was used for | Simple table; lets a reviewer audit your numbers in minutes |
Three build habits matter most: keep every hard-coded number on the Inputs sheet, never type a number inside a formula, and re-add the arithmetic by hand once. In the worked example above, we recalculated each step independently before publishing it, and you should do the same with your own sheet.
Next step
Market sizing is only as good as the data behind it. If you need competitor lists, customer counts or directory data collected, cleaned and delivered as a spreadsheet, see our web research and market intelligence service, where each project is quoted before work starts. You can also browse our free business tools. This article is educational and is not investment or business advice.
Frequently asked questions
What is the difference between TAM, SAM and SOM?
TAM is the total annual revenue if every possible buyer purchased your type of product. SAM is the part of TAM you can serve given your product, location and channels. SOM is the part of SAM you can realistically win in a set period, such as three years.
Is TAM SAM SOM calculated per year?
Usually yes. Most market-sizing work uses annual revenue in dollars, so that TAM, SAM and SOM are in the same unit. State the year and the time horizon for SOM next to the numbers.
Should I use top-down or bottom-up market sizing?
Use both. Top-down is fast and shows whether the category is large enough to matter. Bottom-up is built from customer counts and price, so it is easier to defend. If the two results are far apart, one of your assumptions needs checking.
Where can I find free data for market sizing?
The U.S. Census Bureau publishes County Business Patterns (establishments with paid employees) and Nonemployer Statistics (businesses with no paid employees). The Bureau of Labor Statistics publishes employment and wage data, and the SBA lists free federal sources in its market research guide.
What is a good SOM percentage?
There is no universal figure. SOM should come from your actual sales capacity, budget and competition, not from a standard percentage. A bottom-up check, such as the number of customers your team can realistically close times your price, is more reliable than assuming 1% or 5%.
Can I do TAM SAM SOM in Excel?
Yes. Put assumptions on an Inputs sheet with sources, calculate top-down and bottom-up on separate sheets, and add a reconciliation sheet that compares the two. The layout table in this guide shows one way to organize it.
Size your market in Excel
Top-down and bottom-up sizing, a sanity check and a slide-ready summary. No market data included.
Related: a TAM SAM SOM example, step by step.
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