The Total Addressable Market, or TAM, represents the full revenue potential if a company were to capture every possible customer in a market. No competition. No limits. Just the entire pie.
Think of it as the biggest number you can claim when pitching investors or mapping growth. For B2B revenue teams, TAM sets the ceiling. It guides go-to-market strategy and resource allocation. Get it wrong, and your GTM planning falls apart.
This guide breaks down TAM, SAM, SOM, and market sizing. You’ll learn top-down TAM, bottom-up TAM, and value theory TAM. We’ll cover step-by-step TAM calculation, common TAM mistakes, and real-world TAM examples. By the end, you’ll know how to calculate the total addressable market for your B2B SaaS company or early-stage startup.
We’ll also point to the Cognism TAM calculator, a free tool that pulls third-party data and macroeconomic data to speed things up.
What is Total Addressable Market (TAM)?
TAM is the total money available in your market if you won every deal. Think of it as the maximum revenue potential for your product or service. It assumes you reach every ideal customer. It assumes they all pay. It’s not realistic, but it’s useful.
For B2B SaaS companies, TAM is usually measured in annual revenue. A $50 million TAM means the market spends $50 million per year on solutions like yours. That’s the ceiling.
Early-stage startups use TAM to attract funding. Investors want to see a big enough market to justify their check. Scaling teams use it for market expansion. If your current region is tapped out, TAM shows where to go next.
Why Companies Need TAM
Without TAM, decisions come from guesswork. You might chase small segments. You might overspend on low-value leads. You might miss entire markets.
With TAM, you can:
- Pick the highest-value market segments.
- Forecast revenue with real data.
- Align sales and marketing on the same goal.
- Justify the budget for new territories or features.
TAM answers hard questions:
- How big is the opportunity?
- Which regions should we enter?
- Where do we put our sales team?
It’s the north star for GTM planning.
TAM vs SAM vs SOM: The Key Differences
People mix these up. Here’s the simple breakdown.
- Total Addressable Market (TAM): Everyone who could buy. Global. No filters. Pure revenue potential.
- Serviceable Available Market (SAM): The slice you can reach. Geography, regulations, or channels limit it.
- Serviceable Obtainable Market (SOM): What you can realistically grab. Factors include competitor presence, operational constraints, and market share goals.
| Term | Scope | Example (HR Software) |
| TAM | All companies worldwide need HR tools | 8.9M businesses × $5K/year = $44.5B |
| SAM | Companies in North America you can sell to | 2.1M businesses × $5K = $10.5B |
| SOM | 5% you win in year one | $10.5B × 5% = $525M |
TAM is the north star for GTM. SAM narrows focus. SOM sets sales targets.
Why Companies Need TAM
Early-stage startups live or die by TAM. Investors ask, “Is the market opportunity big enough?” A small TAM kills funding chances.
B2B revenue teams use TAM for:
- Sales and marketing alignment
- Forecasting
- Market expansion decisions
- Product development priorities
Without TAM, you guess. With it, you plan.
How to Calculate Total Addressable Market
Three main ways exist. Pick based on data and stage.
1. Top-Down TAM Calculation
Start broad. Use industry reports from Gartner, Forrester, or IDC.
Steps:
- Find total market size (revenue or units).
- Apply your segment percentage.
- Multiply.
Real-world TAM example:
Global HR software market = $37B (Gartner 2024).
Your focus: SMBs under 500 employees (28% of market).
TAM = $37B × 28% = $10.36B.
Fast. Relies on third-party data. Good for early-stage startup pitches.
2. Bottom-Up TAM Calculation
Build from the ground up. Use your pricing and customer count.
Steps:
- Define ideal customer profile (ICP).
- Estimate ICP count in the target market.
- Multiply by annual revenue per customer.
Real-world TAM example (London graduate recruitment agency):
- UK companies hiring grads: 20,000 (primary research).
- Average contract: £30,000.
- Bottom-up TAM = 20,000 × £30,000 = £600M.
Accurate. Needs solid market research. Best for a B2B SaaS company with pilot campaign data.
3. Value Theory TAM Method
Ask: “What value do we create? What are buyers willing to pay?”
Steps:
- Quantify pain solved (time saved, revenue gained).
- Set price as a fraction of value.
- Multiply by addressable customers.
Example:
Your tool saves sales reps 10 hours/week.
Rep cost: $50/hour.
Annual value: 10 × 50 × 50 weeks = $25,000.
Willing to pay 20%: $5,000/year.
ICP count: 500,000 reps.
Value theory TAM = 500,000 × $5,000 = $2.5B.
Forward-looking. Great for product development and buyer behavior insights.
Step-by-Step TAM Calculation (Bottom-Up for B2B SaaS)
Let’s walk through a full example. Say you sell sales intelligence to UK B2B firms with 50–500 employees.
- Define ICP
- UK companies
- 50–500 staff
- £10M–£100M revenue
- Tech, finance, or consulting verticals
- Count ICP Use Cognism or LinkedIn Sales Navigator. Result: 18,500 companies.
- Set Pricing Single fixed fee: £15,000/year.
- Calculate Annual Revenue Potential 18,500 × £15,000 = £277.5M TAM.
- Validate Cross-check with IDC UK SaaS spend data. Adjust for market conditions (recession cuts 10% → £250M).
That’s your bottom-up TAM.
TAM Calculator Free: Try Cognism’s Tool
Manual math works, but tools save time. The Cognism TAM calculator pulls live data from company databases, macroeconomic reports, and buyer behavior trends.
Input:
- Geography
- Company size
- Industry
- Your pricing
Output:
- TAM, SAM, SOM
- Market segments breakdown
- Growth planning projections
Ilse Van Rensburg, Head of Growth at Cognism, built it for B2B revenue teams. No spreadsheets. No guesswork.
Common TAM Mistakes (and Fixes)
- Overstating TAM by claiming global when you only sell locally. Fix: Stick to serviceable markets.
- Ignoring Market Demand, Big TAM doesn’t mean buyers want it. Fix: Run primary research or pilot campaigns.
- Static Numbers Markets shift. 2025 TAM won’t match 2023. Fix: Update quarterly with fresh data.
- Confusing TAM with SOM Pitching $10B TAM but forecasting $10M. Fix: Show the funnel: TAM → SAM → SOM.
- No ICP “Everyone needs this.” No one believes it. Fix: Nail your ideal customer profile first.
TAM for B2B Sales Teams
Sales leaders use TAM to:
- Set quotas
- Prioritize territories
- Align with marketing on lead volume
Example: TAM shows £600M UK opportunity. SAM (London focus) = £180M. SOM (year-one 3%) = £5.4M.
Quota splits evenly across 10 reps = £540K each.
TAM for GTM Strategy
Go-to-market strategy starts with TAM. It answers:
- Which markets first?
- How much to spend on acquisition?
- When to expand?
High TAM + low SAM = focus on distribution.
Low TAM + high SAM = niche domination.
TAM for Early-Stage Startups
Founders need TAM for:
- Seed/Series A decks
- Hiring sales
- Pricing tests
Investors want 10x potential. A $500M TAM rarely cuts it. Aim for $1B+ in B2B SaaS.
TAM for Market Expansion
Entering Europe? Recalculate:
- New ICP count
- Local pricing
- Regulatory SAM cuts
Example: US TAM $2B. EU add-on $1.1B. Total $3.1B.
TAM for Revenue Forecasting
Link TAM to pipeline:
- SOM = 5% of SAM
- Conversion rates
- Sales cycle length
Forecast = SOM × win rate × velocity.
Real-World TAM Example: Cognism Itself
Cognism sells sales intelligence to B2B revenue teams in EMEA and NA.
Bottom-up TAM (2025):
- Target: Companies with 200+ employees, SDR teams.
- Count: 42,000 (Cognism data).
- ARR: £36,000 average.
- TAM = 42,000 × £36,000 = £1.51B.
SAM (EMEA only): 28,000 firms → £ 1 B.
SOM (year-one 4%): £40M.
They hit £30M ARR in 2024. On track.
TAM and Market Research
Good TAM needs:
- Primary research (surveys, interviews)
- Third-party data (Gartner, Forrester, IDC)
- Competitor analysis
Blend all three. One source lies.
TAM in Product Development
Build for the biggest pain in your TAM.
Example: 60% of ICP struggles with data compliance.
Launch compliance module first.
TAM and Resource Allocation
Big TAM doesn’t mean spray and pray.
Allocate:
- 70% to core SAM
- 20% to the adjacent expansion
- 10% to moonshots
TAM and Funding
VCs screen TAM fast.
Under $1B? Pass.
$1B–$5B? Maybe.
$5B+? Deep dive.
Show calculation. Back it with data. Name sources.
Frequently Asked Questions
What is the total addressable market (TAM)?
The full revenue a product could generate if it won 100% of the market.
How to calculate the total addressable market?
Top-down (reports), bottom-up (customers × price), or value theory (value created × willingness to pay).
Top-down TAM calculation example?
Global cloud market $680B. Your share (SMB collaboration) is 12%. TAM = $81.6B.
Bottom-up TAM calculation example?
15,000 ICP firms × $40,000 ARR = $600M TAM.
Value theory TAM method?
The tool saves $100K/year. Customers pay 15%. 50,000 prospects. TAM = $750M.
TAM calculator free?
Yes. The Cognism TAM calculator is free. Input ICP, get TAM/SAM/SOM instantly.
Why do companies need TAM?
Sets vision. Guides strategy. Wins funding. Aligns teams.
TAM for B2B sales teams?
Defines quota potential and territory priority.
TAM for GTM strategy?
Shows where to focus the budget and messaging.
TAM for early-stage startups?
Proves market size to investors.
TAM for market expansion?
Quantifies new geography or vertical opportunity.
TAM for revenue forecasting?
Feeds pipeline models and growth planning.
Final Thoughts on Market Sizing
TAM isn’t a trophy number. It’s a tool.
Use it to make strategic decisions.
Update it often.
Ground it in data.
B2B SaaS companies live by revenue potential. Early-stage startups die without a market opportunity. Get TAM right, and everything, GTM planning, sales, and marketing alignment, funding falls into place.
