Step-by step guide
Calculate TAM
TAM can be calculated with one of the following methods:
Top-down approach - Start with larger, macro-economic trends within a market like population and then logically apply demographic, geographic and economic assumptions to narrow-down and determine what percentage a company could capture.
Bottom-up approach - Start with the core business figures (number of clients, amount of products sold, average price point) and uses this data to make assumptions about the larger market as a whole.
Formula = (# of accounts in a Market ) X (Annual Contract Value) OR
(# of units sold) X (Median Price)
Calculate SAM
• To calculate SAM, count up all the potential customers that would be a good fit for the business and multiply that number by the average annual revenue of these types of customer in the market.
Formula = (Target Segment of TAM) X (Annual Contract Value)
Calculate SOM
Use one of the following methods to calculate SOM
• Looking through historic performance and projection forecasts to look at where revenue could be in five years’ time. That will give a waypoint to target.
• Handpicking select geographies or markets from the SAM and assigning a targeted market share percentage based on local competitive environments.
Formula = (Last Year’s Market Share) X (This Year’s SAM)