Product Market Sizing | TAM-SAM-SOM | Each PM Should know

4 min readMay 7, 2022

To develop a product strategy, you will need to learn about the overall market, your competition, and your user.

The answer is — Know the Market Size.

Let’s take an example to understand market sizing. Do you know who the king of Twitter is? Well, that’s Mr. Barack Obama(the person who has the most followers) if you didn’t know it already. Now assume that you are the PM at Twitter and you wanted to know who has maximum followers? You can check by checking the number of followers they have. But what if Twitter doesn’t show the count of followers then? In that case, you will have to estimate it yourself.
One way could be to take an estimation of the Twitter users in the world, then estimate the number of politics lovers among them, and then, based on that, estimate Obama’s fans. (narrowing down the scope)

What Is Market Size & why to know?

Essentially, market size refers to the total number of potential buyers for your product. Market size can be beneficial for —

Gaining investment. The is no reason to keep investing in an existing market if your target audience in that market is not growing or declining.
Entering a market with a small pool of targets or personas could mean that your product or sales launch falls below expectations
Develop solid marketing and business strategy. Understanding the potential of a new market also helps formulate pricing strategies, distribution channels, and marketing strategies and campaigns.

It is the overall revenue opportunities available for the product/service if 100% market share is achieved. Also known as the Total Available Market.

As an example, for a telemedicine app, TAM could be, a total number of patients multiplied by average fees.

TAM is NOT the size of the problem, Or how big the market is.

Two main methods can be used to calculate TAM — top-down and bottom-up approaches.

The top-down approach uses industry research from such companies as Forrester, Gartner, and others, which can be obtained from open sources to estimate the population that comprises the target market.
Think of statements like: “The wireless headset market is forecast to reach $2.5 billion by 2023”. It’s good for a general overview of the situation, but it’s a little vague and can be challenging to understand what proportion of the market you can realistically corner.
The bottom-up approach is more reliable because it is based on primary market research. You should count/estimate the total number of customers in a market by adding up the number of customers that each company has and multiplying that number by the average annual customer revenue in this market.

SAM is the second layer of the market that can acquire. It is that part of TAM for which our business model’s value proposition is strongest.
As an example, for a telemedicine app if our target market is urban India, SAM could be, the total number of patients in urban India multiplied by average fees.

It is the subset of SAM that is really going to use our platform.
As an example, for a telemedicine app if our focus is on metro cities that fall in the middle-class category, SOM could be, the total number of patients in that category multiplied by average fees.

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