What is total addressable market (TAM)?
Total addressable market (TAM) is the total revenue available if every customer who could use your product bought it. It is usually estimated bottom-up as the number of potential customers multiplied by the average yearly revenue per customer, and narrowed into SAM and SOM to show what you can realistically reach.
Bottom-up calculation, worked through
Say you sell booking software to independent hair salons in the UK at $40 a month.
- Count the accounts. Start with salons in business listings across the UK. Say a listings search across towns returns about 30,000 independent salons after removing chains and duplicates.
- Set the yearly value. $40 x 12 = $480 per salon per year.
- Multiply. 30,000 x $480 = $14.4m. That is your TAM.
Then narrow it.
| Layer | Rule | Accounts | Yearly value |
|---|---|---|---|
| TAM | All independent UK salons | 30,000 | $14.4m |
| SAM | 2+ chairs and no booking system yet (you only serve them for now) | 12,000 | $5.76m |
| SOM | Share you could win in 3 years with your current team, say 3% | 360 | $172,800 |
All figures here are an illustration, not market research. The method is the point: every number is a count you can check or a price you set.
Top-down versus bottom-up
Top-down starts from a published industry total ("the salon software market is worth $X") and takes a slice. It is fast but hard to defend, because you cannot see what the report counted.
Bottom-up counts actual accounts that match your ideal customer profile and multiplies by your real price. It is slower and more honest. If the bottom-up and top-down numbers differ by ten times, find out why.
Why TAM matters for prospecting
TAM is not only for pitch decks. It tells you how careful you need to be. With a SAM of 12,000 accounts, you can afford to contact each one thoughtfully, perhaps a few dozen a day, and you will not run out for over a year. If your SAM is 800 accounts, every badly written cold email burns a meaningful share of your market, which argues for account-based marketing over volume.
Common mistakes
- Counting people instead of buyers. "There are 5 million small businesses" ignores that most will never need your product.
- Using list price for everyone. Average revenue per account after discounts is lower.
- Forgetting the disqualifiers. Chains, companies already locked into a competitor and those outside your countries should come out.
- Confusing TAM with pipeline. A big TAM does not mean leads. You still need buying signals to know who to approach this month.
Where Sluice fits
For businesses that sell to local trades and shops, the listings count in step 1 is where most bottom-up TAMs start, and those businesses are poorly covered by company databases built around job titles; see finding local business leads. Sluice searches local business listings by trade and town, which can give you a working count before you commit to a market.
Questions people ask
- What is the difference between TAM, SAM and SOM?
- TAM is every possible customer. SAM (serviceable addressable market) is the part you can serve with your current product, channels and geography. SOM (serviceable obtainable market) is the share of SAM you can realistically win in the next few years.
- Is top-down or bottom-up TAM better?
- Bottom-up is usually more credible, because each input can be checked: a count of real companies and a price you actually charge. Top-down figures from industry reports are useful as a sanity check.
- Do investors care about TAM?
- Yes, as a test of whether the business can grow large. But a defensible, bottom-up number is more persuasive than a huge top-down one.
Try it on your own market
Sluice quotes the worst-case price before anything runs and charges only for lookups that found something, so finding out costs close to nothing.
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