In short
- The TAM (total addressable market) covers every company that could, in principle, buy your offering – and the total revenue you could generate from them.
- The SAM is the part of it you can actually serve with your offering and sales team; the SOM is the share you can realistically win within a given period.
- In B2B sales, the bottom-up approach is the more useful one: instead of estimating market size from industry statistics, you identify the matching companies individually and by name.
- The result is not just a number but a list your sales team can start working with straight away.
What is the TAM?
TAM stands for total addressable market. It means every customer who could, in principle, need your offering – regardless of whether you reach them today. In B2B, these are the companies that match your ideal customer profile: for example, all machinery manufacturers with 50 to 1,000 employees and their own engineering department in Germany, Austria and Switzerland.
The TAM can be expressed in two ways: as the number of matching companies and as revenue potential in euros. For sales planning, the number is often more important, because it shows how many conversations are possible in the first place.
TAM vs. SAM vs. SOM
| Term | Meaning | Example |
|---|---|---|
| TAM – Total Addressable Market | All companies that could, in principle, buy from you | All machinery manufacturers with 50–1,000 employees in DACH (Germany, Austria, Switzerland) |
| SAM – Serviceable Addressable Market | The part you can actually serve with your offering, language and sales team | Of those, the ones with their own engineering department in Germany |
| SOM – Serviceable Obtainable Market | The share you can realistically win within a given period | The customers your team can win in twelve months |
Top-down or bottom-up: which method is right?
With the top-down approach, you start with a large number – such as the total number of companies in an industry from official statistics – and narrow it down using assumptions. It is quick, but only produces an estimate. With the bottom-up approach, you count the matching companies one by one. It takes more effort, but at the end you know who your market is.
| Top-down | Bottom-up | |
|---|---|---|
| Method | Narrow down industry statistics using assumptions | Identify and verify matching companies individually |
| Result | An estimated number | A number and a named list |
| Accuracy | Depends on the assumptions | Depends on the sources and verification |
| Value for sales | Low – nobody knows whom to call | High – the list is the starting point for outreach and the CRM |
| Typical use | Initial estimate, pitch deck | Sales planning, territories, campaigns |
How to calculate your TAM in five steps (bottom-up)
- Define your criteria. Describe your ideal customer in a way that can be recognised from the outside: industry, size, region, business model and characteristics such as their own field sales force or multiple locations. Our guide to the ideal customer profile shows you how.
- Build the population. Collect all candidates – from commercial and company registers, via industry codes (in Germany, the Classification of Economic Activities, WZ 2008, the national counterpart of NACE), association and trade fair directories, and company databases.
- Close the gaps. Many matching companies are classified incorrectly or not at all. A special-purpose machinery manufacturer may be listed under a completely different code. Websites, job ads and specialist directories help you find these companies anyway.
- Verify and clean up individually. Remove duplicates, dissolved companies and pure holding companies, assign group subsidiaries correctly and check every company against your criteria.
- Score and segment. Give every company a fit score and divide the market into segments – for example by size, region or sub-industry. This shows you where your sales team should start.
From TAM in companies to TAM in euros
Once you know how many companies match, extrapolating the revenue potential is simple: number of matching companies × the revenue you expect per customer per year. If your customers vary in size, calculate per segment and add the results together.
Worked example: a software provider finds 2,400 matching companies. It expects around €8,000 in revenue per year from a smaller customer and around €20,000 from a larger one:
| Segment | Matching companies | Your revenue per customer per year | Revenue potential per year |
|---|---|---|---|
| Smaller companies | 1,500 | €8,000 | €12m |
| Larger companies | 900 | €20,000 | €18m |
| Total TAM | 2,400 | €30m |
The figures are a fictitious example. What matters is the revenue you make with a customer – not the customer's own revenue.
Common mistakes when sizing a market
- Confusing a database filter with the market. A company database only shows what it knows. Based on the average across our projects, around 42% of matching companies are not listed in any common database.
- Filtering too broadly by industry codes. Industry codes are often outdated or too general and say nothing about characteristics such as business model or organisation.
- Ignoring group structures. If subsidiaries and parent companies are counted twice, the market looks bigger than it is.
- Calculating the number once and never updating it. Markets change constantly: companies are founded, grow into your profile or disappear.
How to use your TAM in sales
- Sales planning: how many conversations are needed – and possible – to reach your revenue target?
- Territories and capacity: how is the market spread across regions, and how many salespeople do you need?
- Prioritisation: which segments are the best fit and should be approached first?
- Campaigns and signals: a complete list is the foundation for spotting buying signals – find out more in our guide to buying signals in B2B sales.
Rather not count your market yourself?
In the free Market Check we determine your market size and show you 25 sample companies from your market.
Frequently asked questions
What is the difference between TAM, SAM and SOM?+
The TAM covers every company that could, in principle, buy your offering. The SAM is the part of it you can actually serve with your offering and sales team. The SOM is the share you can realistically win within a given period.
How do you calculate TAM in B2B?+
The most reliable way is bottom-up: define your criteria, identify all matching companies from registers, industry codes, directories, websites and job ads, then verify and clean up each one individually. The revenue potential is the number of matching companies multiplied by the revenue you expect per customer per year.
Is a company database enough to size the market?+
Usually not. Databases only contain companies they know about and have classified correctly. Based on the average across Fullmarket's projects, around 42% of matching companies are not listed in any common database.
How often should you update your market size?+
For sales planning, at least once a year; for ongoing outreach, ideally every month – because companies are founded, grow into your profile, move their registered office or disappear.