TAM SAM SOM: Market Sizing for Finance Interviews
Master market sizing with the TAM SAM SOM framework. Learn top-down vs bottom-up approaches and how to ace market sizing interview questions.
Market sizing is a core skill for VC interviews and strategic thinking. The TAM SAM SOM framework helps structure your analysis and communicate market opportunity clearly.
The TAM SAM SOM Framework
The Three Levels
TAM (Total Addressable Market): The entire market if you captured 100%
SAM (Serviceable Available Market): The portion you can realistically target
SOM (Serviceable Obtainable Market): The share you can realistically capture
Visual Example
Think of concentric circles:
- TAM (outer): All spending on transportation globally = $5T
- SAM (middle): Urban ride-sharing in developed markets = $200B
- SOM (inner): What Uber can realistically capture = $50B
Two Approaches to Market Sizing
Top-Down Approach
TAM = Industry Report Market Size × Relevant Segment %Start with broad industry data and narrow down to your specific segment.
Top-Down Example: Food Delivery
- US restaurant industry: $800B
- Delivery-compatible (not fine dining): 60% = $480B
- Addressable by apps: 30% = $144B
- TAM for food delivery platforms: ~$140B
Bottom-Up Approach
TAM = # of Potential Customers × Average Annual SpendCalculate from individual customer economics and scale up.
Bottom-Up Example: Food Delivery
- US households: 130M
- % that order delivery: 50% = 65M
- Average orders per year: 25
- Average order value: $35
- TAM = 65M × 25 × $35 = ~$57B
You're sizing the market for a new B2B software product. Which approach is MORE credible to VCs?
From TAM to SAM to SOM
Narrowing the Market
| Term | Definition | Note |
|---|---|---|
| TAM → SAM | Filter by geography, segment, product fit | What CAN you serve? |
| SAM → SOM | Apply realistic market share assumption | What WILL you capture? |
| Typical SOM | 1-10% of SAM in year 3-5 | Be conservative |
Full TAM → SOM Example: B2B SaaS
TAM: Global enterprise software = $600B
SAM: HR software for mid-market US companies = $15B
SOM: 5% market share in 5 years = $750M ARR potential
A startup claims a $50B TAM. What question should you ask to evaluate this claim?
Common Mistakes to Avoid
Warning
- "Everyone is our customer" – Be specific about who actually buys
- Using TAM when you mean SAM – VCs see through inflated numbers
- Ignoring competition – Market share isn't 100%
- Circular logic – "If we get 1% of this huge market..." (prove why you'd get 1%)
- Not checking reasonableness – Does your number pass the smell test?
Practice Calculation
You need to size the US pet food delivery market. You know: 70M US households have pets, average pet food spend is $500/year, and 15% of purchases are online. What's the TAM for pet food delivery?
Key Numbers to Know
Useful Reference Numbers (US)
| Term | Definition |
|---|---|
| Population | ~330 million |
| Households | ~130 million |
| GDP | ~$25 trillion |
| Consumer Spending | ~$15 trillion |
| Businesses | ~30 million |
| Median Household Income | ~$70K |
Key Takeaways
Key Takeaway
- TAM → SAM → SOM: Narrow from total market to what you can realistically capture
- Bottom-up is more credible than top-down industry reports
- State assumptions clearly – Interviewers care about your thinking process
- Sanity check your answer – Does it pass the smell test?
- Practice regularly – Market sizing is a learnable skill
Continue Learning
- How VCs Evaluate Startups — The full investment framework
- VC Interview Questions — Complete VC interview prep
- Top 30 VC Interview Questions — Most common VC questions