What is Total Addressable Market (TAM)? + How to Calculate It

Understanding the size of your market opportunity is the first step in building an effective go-to-market strategy.

But to do that, you need to calculate your total addressable market (TAM).

It gives you a clear picture of the maximum revenue potential available if every ideal customer chose your solution.

For B2B revenue teams, accurately calculating your TAM can sharpen forecasting, support expansion planning, and align sales and marketing efforts around your most valuable opportunities.

👉 Want a quick way to estimate your TAM? Try our free TAM calculator to see the size of your market in minutes.

What is total addressable market (TAM)?

Total addressable market (TAM) is the total revenue opportunity available for your  product or service if you captured 100% of your ideal customer base. It’s a critical metric used by B2B sales and marketing teams to understand their full market potential and shape their go-to-market (GTM) strategies.

TAM is typically measured in terms of annual revenue potential and is a key input into strategic decisions, such as market expansion, product development, and resource allocation across sales and marketing.

Why companies need to define their TAM

Calculating your TAM gives you a clear view of the growth potential within your industry or niche. Without it, you risk making decisions based on gut instinct or assumptions.

With it, you can:

• Prioritise the highest-value market segments.

• Forecast revenue more accurately.

• Align cross-functional teams around a shared understanding of opportunity size.

• Justify funding for new initiatives or territories.

Understanding your TAM also helps answer key strategic questions such as:

• How big is the opportunity for our product?
• Which markets or regions should we expand into?
• How should we allocate sales and B2B marketing resources?

Whether you’re an early-stage startup or a scaling B2B SaaS company, TAM acts as a north star for your GTM efforts.

TAM vs SAM vs SOM: What’s the difference?

While TAM refers to the total potential market, it’s often confused with:

TAM: Total Addressable Market

TAM represents the full market demand for your solution. It assumes unlimited reach and resources, meaning you could serve every potential customer who needs what you offer. It’s the broadest possible view and is often used to benchmark your business’s maximum potential.

SAM: Serviceable Available Market

SAM is a more refined slice of your TAM. It takes into account your current capabilities, like product limitations, language support, or geographic availability, and reflects the market you can actually serve today.

SOM: Serviceable Obtainable Market

SOM goes one step further and reflects your realistic market share. It considers how much of the SAM you can capture based on factors like sales team size, competition, budget, brand awareness, and operational limits.

All three metrics are essential for growth planning, but TAM gives you the broadest view of what’s possible.

How to calculate total addressable market

There are three main methods for calculating TAM:

• Top-down
• Bottom-up
• Value theory

Each has pros and cons, depending on your data and business model.

Top-down TAM

The top-down approach to market sizing involves taking the total number of potential customers in a B2B dataset, and applying demographic and geographic filters, narrowing the results until you reach a market subset.

It’s based on existing findings from market research firms, such as Gartner and Forrester.

Here’s an example of total addressable market calculation from a graduate recruitment agency in London, UK:

• They know there are 8,900,000 people in the city.
• They also know that 11.6% of those people are between 18-24.
• By multiplying 8,900,000 by 11.6%, they estimated a market opportunity of 1,032,399.

Pros: It's Quick and easy with third-party data.

Top-down analysis relies on gathering macroeconomic data from third-party organisations and sources. You can easily source this data type from various websites and institutions, including market research reports.

Cons: Often lacks accuracy or nuance; may rely on outdated or broad assumptions.

Because the data comes from third parties, it may only be partially accurate.

The top-down method also doesn’t account for disruptive products that alter or create new market landscapes due to their popularity.

This approach starts with broad market data from industry research (e.g. Gartner, IDC) and narrows it down to fit your ideal customer profile.

Bottom-up TAM

The bottom-up method is the reverse of the top-down.

To do a bottom-up analysis, start with a smaller market segment. Then extrapolate from that until you discover a total potential customer base. A bottom-up calculation is expressed in terms of maximum revenue.

Unlike top-down TAM, the bottom-up approach relies on your own primary research (e.g., a survey conducted in a local  target market or a pilot campaign in a small geographic area).

What’s a good example of bottom-up TAM?

Let’s return to the London graduate recruitment agency.

• They sent out a campaign of email newsletters to London universities and had 25,000 sign-ups.
• They charge a single fixed fee of £100 per person recruited.
• 25,000 x £100 = a total potential revenue of £2,500,000.

The simple total addressable market formula in this case is:

(# of possible Accounts) x (Annual Contract Value) = TAM

This method uses internal data on your existing customers and sales performance to project your market size.

Pros: More accurate and tailored to your actual market.

Bottom-up TAM is based on your own sales data generated in-house. Therefore, the final calculation is more likely to be accurate and relevant to your business model.

Cons: Requires reliable internal data and a strong understanding of your ICP.

Due to the assumptions made from a small target market segment, the ultimate TAM calculation derived from the bottom-up technique can be misleading.

This is particularly pertinent if you’re trying to make a global TAM calculation. Factors such as population density, economic prosperity and consumer expenditure can vary from country to country.

However, we recommend this as the best method for most B2B SaaS companies.

Value theory TAM

The value-theory method begins by asking what a buyer would be willing to pay for a product or service based on the value it delivers.

You then multiply this by the total number of people or companies that perceive the same value and would be willing to adopt your solution in place of the competition.

Here are some questions to answer when determining your total available market using this method:

• How many people would get value out of your latest idea?
• How much they would be willing to pay for it?

For example, if your product could save a business £10,000/year, and you reasonably charge 10% of that value, your TAM is based on a £1,000 price point per potential customer.

Pros: Helps with pricing and value positioning.

Value theory is helpful for companies that have developed a unique product that is creating new markets or reshaping current ones.

It’s a suitable method for companies that lack marketing data or the resources to conduct their own research (typically startups).

It’s also beneficial if you’re testing new features or upgrading your existing product roadmap.

Cons: Subjective and harder to validate.

Value theory is primarily based on conjecture and guesswork; its conclusions will never be 100% accurate.

But, by focusing on the value your product can deliver to consumers, you can estimate how to capture that value through pricing.

Real-world TAM example using the bottom-up method

Let’s say we're targeting revenue teams in B2B SaaS companies with 50+ employees in the UK and US. Based on public databases and firmographic filters, we identify 20,000 companies that match.

If our average annual deal size is £30,000, the TAM would be: 20,000 companies x £30,000 = £600 million (£600M)

From here, we could calculate:

• SAM by applying filters such as region, tech stack, or budget size.
• SOM by looking at market share goals, competitor presence, or capacity of our sales team.

TAM calculator: Try it yourself

By now, you’ll realise calculating your TAM is tough!

So, we decided to make it much easier with our total addressable market calculator.

Use our free TAM calculator to input your ICP size and average contract value. It’ll instantly estimate your total addressable market, along with SAM and SOM.

Give it a try now 👇

Common TAM mistakes to avoid

One of the most common mistakes when calculating your total addressable market is relying on overly broad or outdated market data.

This can lead to inflated projections and missed targets, especially if the data doesn’t reflect current buyer behaviour or market conditions.

Another pitfall is failing to properly validate your ideal customer profile (ICP).

If your ICP is too vague or based on assumptions rather than real buyer signals, your TAM calculation won’t accurately reflect the true opportunity.

It’s also easy to confuse TAM with other metrics like SAM or SOM.

Each plays a distinct role in market sizing, and conflating them can result in unrealistic revenue expectations or flawed GTM planning.

Finally, some teams overestimate their ability to capture market share, assuming they’ll win a large slice of the market without factoring in competition, budget, or operational constraints.

Being overly optimistic can set you up for underperformance and resource misallocation.

FAQs about Total Addressable Market

Total addressable market: key takeaways

Total addressable market isn't just a metric, it’s a strategic lens that sharpens how you plan, prioritise and grow.

Whether you’re entering a new region, launching a product, or aligning your sales and marketing teams, TAM gives you a solid foundation for confident decision-making.

By understanding the size and scope of your opportunity, you can focus your efforts where they matter most.

• If you don’t know your TAM, you don’t know how fast your business may grow.
• Investors are more likely to buy into your company if you have a well-thought-out TAM.
• Cognism recommends using the bottom-up TAM method.
• Cognism’s B2B data solutions are tailor-made for accurate TAM analysis.

Use Cognism’s data to build an accurate TAM and identify your best-fit prospects. Try the calculator or book a demo.