I'm looking at a software product that gets a new healthcare facility, IT ready. Previously another consultant said the US Total Addressable Market (TAM) was $29B a year. Wow, that sound great. Until I looked at their work. They counted 100% of all non-residential construction. Oh my. Apples and oranges.
Here's a refresher course. First off figure out your product's MSRP. Let's say it's $100 for a bundle of napkins for restaurants. Next, estimate the number of restaurants in the world and how many bundles of napkins they use. Multiply that by $100. That's your TAM. You'll never get there, but if it is a good sized TAM you have some room to pivot.
The Service Addressable Market (SAM) is a tight description of the exact type of restaurant that is a perfect fit for your napkins and geographically where they are located. Estimate how many bundles they would need. Multiply by $100. That's your SAM.
Next comes the tricky part. The Service Obtainable Market (SOM) is a bottom up approach based on your Go To Market plans. The SOM is how many units you will sell (times $100) in specific time frame, like 3 years. If you tell me you will capture 4% of the SAM market in three years w/o a Go To Market, then I run away.
