Market sizing helps a business understand the scale of an opportunity. It becomes misleading when a large industry total is presented as demand the company can realistically capture.
TAM, SAM and SOM provide a common way to separate different levels of opportunity. The labels are useful only when the definitions, assumptions and units behind the calculation are clear.
Define the three levels
Total addressable market (TAM) describes the broad demand for the defined category of product or service. Serviceable available market (SAM) narrows that opportunity to the customers the proposed offer and delivery model could serve. Serviceable obtainable market (SOM) considers what the company might realistically obtain within a specified period and set of operating assumptions.
These are planning estimates. SOM should not be treated as a revenue forecast unless the analysis also addresses commercial conversion, timing, delivery capacity and other relevant constraints.
Choose the unit before calculating
Decide whether the estimate concerns organisations, locations, engagements or annual spending. Mixing units creates errors that can remain hidden inside an impressive total.
A company with several locations may represent one purchasing decision or several. Similarly, an organisation may buy a service once, periodically or through a recurring arrangement. State which behaviour the model assumes.
Work through an illustrative example
The following figures are invented solely to demonstrate the method. They are not Canadian market statistics or CREDIUM projections.
- A broad category contains 10,000 potentially relevant organisations.
- Applying geography, need and service-fit filters leaves 1,500 organisations in the SAM.
- The proposed delivery team could complete 24 engagements in the first planning year.
- A separate commercial model would need to explain whether sufficient suitable opportunities could become engagements within that year.
If the illustrative average engagement value were CAD 12,000, multiplying all 1,500 organisations by that value would produce CAD 18 million of potential spending under the assumption that each buys one engagement in the period. It would not establish that those purchases will occur. Delivery capacity of 24 engagements would imply CAD 288,000 of capacity-based value at the same assumed price, before considering actual demand, timing or costs.
Expose the assumptions that drive the result
Record each important input, source, reference period and limitation. Test alternative values for the inputs that most affect the answer. A range can be more informative than a single total when the evidence is uncertain.
For Canadian public data, begin with Statistics Canada and select datasets that match the question. Check whether the data measures businesses, establishments or another unit. The definitions matter as much as the count.
Cross-check from the bottom up
Build a second view from a realistic customer list, delivery capacity and observed buying process. If this view is much smaller than the broad market estimate, investigate the difference. Do not average the two numbers simply to produce a compromise.
Use the result to decide what to research or test next. Read expansion research questions and how to structure a go-to-market plan. CREDIUM's market intelligence services support a more explicit view of opportunity and uncertainty.