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Hello! Sorry to be a day late this week. I was lecturing yesterday at my local university in Cambridge on how to understand your customer before you generate business ideas.
This week I want to show you how investors actually read TAM, SAM and SOM, how to build each number from the bottom up, and a UK worked example you can copy.
Long story short, I see the same market size slide in almost every deck I’m sent. A big circle labelled £40 billion, a smaller circle labelled £4 billion, a tiny circle labelled £40 million, and a note saying "we only need 1%". Investors see it too.
How do you create yours, accurately?
Why can't most businesses capture 100% of their SAM?
What TAM, SAM and SOM mean
TAM is the total annual revenue available if every possible customer bought your product. SAM is the part of the market your business model and geography can actually serve. SOM is the share of SAM you can realistically win in the next three to five years.
TAM, total addressable market. The annual revenue available if every customer who could ever use your product bought it at your price. TAM answers one question. How big could this category get?
SAM, serviceable addressable market. The slice of TAM your current product, pricing, channels and geography can reach. A UK-only B2B tool serving independent businesses has a SAM far smaller than its global TAM. SAM answers a second question. Who can you sell to with the business you have today?
SOM, serviceable obtainable market. The share of SAM you can realistically win in three to five years, given your sales capacity, competition and funding. SOM answers the question investors care about most. How much revenue can this team capture with this round?
Term | What it measures | The question it answers |
|---|---|---|
TAM | Every possible customer at your price | How big is the prize? |
SAM | Customers your model and geography can reach | Who can you serve today? |
SOM | Customers you can win in 3 to 5 years | What will you actually capture? |
How investors read your market size slide
Investors use the market slide to test your judgement, not to learn the size of the market. Most of them already have a rough sense of the category. They are checking whether you understand your customer, your route to them and your own limits.
In my experience, three things make an investor stop trusting the slide.
A top-down TAM with no method. A figure lifted from an industry report, with no link to your pricing or your customer, tells the investor you have not done the work.
A global TAM for a UK-only business. If your product, pricing and sales team only serve the UK, a global number inflates the opportunity and signals naivety about expansion.
The "1% of a huge market" SOM. One per cent sounds modest. Investors read it as a guess. Nobody wins 1% of a market by default. Customers are won one at a time, through channels with real costs.
Here is what builds trust instead. A TAM large enough to support a venture outcome, a SAM grounded in who you can reach now, and a SOM built from your sales capacity. Investors will forgive a smaller TAM with a credible method long before they forgive a huge TAM with no method at all.
How to calculate TAM, SAM and SOM bottom up
Bottom-up market sizing starts with customers and prices, then builds upward. It is the method UK angels and seed funds trust most, because every number can be checked.
Count the customers. Define your ideal customer precisely, then count how many exist. Use sources an investor can verify, such as Companies House, ONS business counts, trade association membership or regulator registers.
Set the annual value per customer. Use your actual price, or the price your pilots and pre-sales support. Multiply monthly pricing by twelve and include any add-ons customers genuinely buy.
Multiply, then narrow. Customers multiplied by annual value gives TAM. Apply your real constraints, such as geography, segment, compatible software or buying process, to reach SAM. Apply your sales capacity over three to five years to reach SOM.
Write down every source and assumption as you go. The source list is often more persuasive in a data room than the slide itself.
Top-down vs bottom-up market sizing
Top-down market sizing starts with a large industry figure and cuts it into smaller slices. Bottom-up market sizing starts with individual customers and adds them together.
Top-down | Bottom-up | |
|---|---|---|
Starts with | An industry report figure | A count of real customers |
Speed | Fast | Slower |
Can an investor check it? | Rarely | Yes, line by line |
Shows you know your customer | Weakly | Strongly |
Best use | A sanity check on your TAM | The numbers on your slide |
Use top-down sizing as a cross-check only. If your bottom-up TAM is wildly larger than the top-down figure, one of your assumptions is wrong. If the two figures sit in the same range, you have a stronger slide.
A worked UK example
Here is a simplified example using illustrative numbers. Imagine a B2B appointment scheduling tool built for independent UK dental practices, priced at £200 a month.
TAM. Suppose there are around 12,000 dental practices in the UK. At £2,400 a year each, TAM is £28.8 million. [Replace with a verified practice count and source before publishing.]
SAM. The product only works for independent practices running one of two compatible practice management systems. Suppose 7,000 practices meet both conditions. SAM is 7,000 × £2,400, or £16.8 million.
SOM. The founders plan to hire two salespeople after the raise. Each can realistically close 12 practices a month once ramped, allowing for churn and a slow first six months. Over three years the model lands at roughly 280 paying practices, or about 4% of SAM. SOM is 280 × £2,400, or £672,000 in annual recurring revenue.
Layer | Method | Number |
|---|---|---|
TAM | 12,000 UK practices × £2,400 a year | £28.8M |
SAM | 7,000 independent, compatible practices × £2,400 | £16.8M |
SOM (year 3) | 280 practices won by 2 sales hires × £2,400 | £672k ARR |
A £672,000 SOM looks small next to a £40 billion circle. An investor will trust it far more, because it connects directly to the hires in your use of funds and the milestone your round is meant to reach.
How to calculate SOM you can defend
A defensible SOM comes from your go-to-market plan, not from a percentage. Work it out from four inputs.
Sales capacity. How many customers each salesperson, channel or partnership can close per month, based on your pilots so far.
Conversion rates. Your real figures from demo to trial to paid, or honest assumptions clearly labelled as assumptions.
Churn. How many customers leave each year. Use your pilot data or a cautious sector benchmark.
Funding. How many hires and how much marketing the round actually pays for.
Your SOM should match the revenue in your financial model and the milestone behind your raise. If it does not, investors will spot the gap. I cover how to size the raise itself in Raise Sizing 101.
TAM, SAM and SOM FAQ
What is a good TAM for a seed-stage startup?
Most UK seed investors want to see a path to a business worth £100 million or more. Your TAM usually needs to reach several hundred million pounds across the markets you could credibly enter. A smaller TAM can still suit angel investors or revenue-based finance.
Should TAM be global or UK only?
Match TAM to the markets your product could serve with reasonable changes. Keep SAM to the markets you can serve today. If you show a global TAM, show a separate UK SAM so investors can see both the ambition and the reality.
What is the difference between SAM and SOM?
SAM is every customer your current business model can reach. SOM is the share of those customers you can realistically win in three to five years with your team and funding.
Do investors prefer top-down or bottom-up market sizing?
Investors prefer bottom-up market sizing because every figure can be checked against a real source. A top-down figure works best as a cross-check alongside your bottom-up numbers.
How do I show TAM, SAM and SOM in a pitch deck?
Use one slide. Show the three figures, one line of method under each, and a source note at the bottom. Keep the full calculation in your data room so investors can check it during diligence.
Your market size, done properly
If you want to build this yourself, the Market Size Calculator walks you through every step for £19.
If you are raising in the next six months and want me to pressure-test your market sizing alongside your whole investment case, Capital Studio is where I work with founders one to one.
Until next week,
Lucy x
P.S If this made you think of another founder, forward it to them. If you have a fundraising question you want me to cover, reply to this email.
Want the numbers built for you?
The Market Size Calculator builds a bottom-up TAM, SAM and SOM from your own customer counts and pricing, with an evidence column investors can check. £19, instant download
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Until next week,
Lucy