In short
Show market size as three numbers: TAM, the total annual revenue if every possible customer bought; SAM, the part your product and channels can serve; and SOM, the share you can realistically win in three to five years. Calculate them bottom-up, as number of customers multiplied by annual price, and show the working.
Venture investors need to believe a company could become very large, so they look closely at market size. They also check whether your numbers are realistic. A transparent calculation earns more trust than a big headline figure.
TAM, SAM and SOM explained
| Measure | Meaning | Question it answers |
|---|---|---|
| TAM | Total addressable market | How much would be spent each year if every possible customer bought? |
| SAM | Serviceable addressable market | How much of that can your product, region and channels actually reach? |
| SOM | Serviceable obtainable market | How much can you realistically win in the next three to five years? |
Bottom-up versus top-down
Top-down starts from an industry report figure and takes a percentage. Bottom-up multiplies the number of target customers by what each would pay per year. Investors prefer bottom-up because every input can be checked; use top-down only as a cross-check.
Target customers: independent pharmacies in India.
SAM: pharmacies in the cities you can sell to today × annual subscription price.
SOM: the share of those pharmacies your sales team can reach and convert in four years, based on your current conversion rate.
Common mistakes
- Quoting the size of a whole industry, such as ‘global healthcare’, as your TAM.
- Saying ‘if we get just 1% of the market’ without showing how.
- Mixing currencies or years without labels.
- No source for third-party figures.
Frequently asked questions
How big does my market need to be for venture capital?
There is no fixed number, but VC funds need some investments to return the whole fund, so they look for markets large enough to support a very large company. Show how your SAM could grow as you add products, customer types or regions.
Can I show the market size as a single number?
You can, but most investors expect TAM, SAM and SOM. Three nested circles or a funnel is a familiar way to show them.
Written by Gachi Foundation, a non-profit in Jharkhand, India. All pitch deck resources.