---
title: "Defining market size using TAM, SAM, SOM"
subject: "Entrepreneurship Development"
chapter: 3
key: "semester_7/entrepreneurship_development:market-size-tam-sam-som"
source: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/market-size-tam-sam-som
site: BCT Engineering
---

# Defining market size using TAM, SAM, SOM

Entrepreneurship Development · Chapter 3: Market Validation

- Asked in: year not given, 6 marks
- Video: [How to Size Your Addressable Market (TAM, SAM, SOM, top-down vs. bottom-up)](https://www.youtube.com/watch?v=j7wwVo-zJ3c) — JR Santosdiaz
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/entrepreneurship_development/market-size-tam-sam-som
- Whole chapter: https://www.bctengineer.com/md/semester_7/entrepreneurship_development/chapter-3

## Question

Explain TAM, SAM and SOM. A startup plans a home-water-testing kit. There are 12,00,000 households in its target cities; 35% of them can afford and need the kit; one kit costs Rs 1,800 per year (subscription). The startup expects to capture 4% of the serviceable households in the first years. Estimate SAM and SOM in number of customers and in rupees per year.

## Short answer

SAM = 4,20,000 households × Rs 1,800 = Rs 75.6 crore; SOM = 4% of SAM = 16,800 customers, revenue Rs 3.02 crore per year.

## Answer

#### Definitions
- **TAM (Total Addressable Market):** total demand for the product if every possible customer bought it.
- **SAM (Serviceable Available Market):** the part of TAM the startup can reach with its product, location and channels.
- **SOM (Serviceable Obtainable Market):** the share of SAM the startup can realistically win in the near term.

```text
+-----------------------------+
| TAM                         |
|   +---------------------+   |
|   | SAM                 |   |
|   |    +-----------+    |   |
|   |    |    SOM    |    |   |
|   |    +-----------+    |   |
|   +---------------------+   |
+-----------------------------+
```

#### Bottom-up calculation
Households in target cities = 12,00,000.

Serviceable households (SAM customers):

$$
12{,}00{,}000 \times 0.35 = 4{,}20{,}000
$$

SAM in rupees:

$$
4{,}20{,}000 \times 1{,}800 = \text{Rs } 75.6\text{ crore}\ (\text{Rs } 756\text{ million})
$$

Obtainable customers (SOM):

$$
4{,}20{,}000 \times 0.04 = 16{,}800
$$

SOM in rupees:

$$
16{,}800 \times 1{,}800 = \text{Rs } 3.024\text{ crore}\ (\text{Rs } 30.24\text{ million})
$$

Bottom-up estimates (customers × price) are preferred to top-down percentages because they rest on checkable assumptions.

**Answer:** SAM = 4,20,000 households = Rs 75.6 crore per year; SOM = 16,800 customers = Rs 3.02 crore per year.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. SOM is:
   A. The share of SAM the startup can realistically win in the near term
   B. Total demand if everyone bought
   C. The part of TAM reachable with channels
   D. Total households in a country
   Answer: A. SOM is the obtainable share of SAM. (Key point: TAM, SAM, SOM)

2. How many serviceable households (SAM customers) are there?
   A. 12,00,000
   B. 4,20,000
   C. 16,800
   D. 1,80,000
   Answer: B. 12,00,000 x 0.35 = 4,20,000. (Key point: SAM customers)

3. SAM in rupees per year is:
   A. Rs 3.02 crore
   B. Rs 21.6 crore
   C. Rs 75.6 crore
   D. Rs 756 crore
   Answer: C. 4,20,000 x 1,800 = Rs 75.6 crore. (Key point: SAM in rupees)

4. SOM in customers and rupees is:
   A. 16,800 customers, Rs 30.2 crore
   B. 48,000 customers, Rs 8.6 crore
   C. 4,20,000 customers, Rs 75.6 crore
   D. 16,800 customers, about Rs 3.02 crore
   Answer: D. 4% of 4,20,000 = 16,800; x 1,800 = Rs 3.024 crore. (Key point: SOM)

## Related in Entrepreneurship Development

- [NPV and payback of a startup project](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Anpv-payback-startup-project) — Entrepreneurship Development, chapter 5
- [Pilot testing and market feedback](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Apilot-testing-feedback) — Entrepreneurship Development, chapter 3
- [Break-even analysis for a startup](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Abreak-even-analysis-numerical) — Entrepreneurship Development, chapter 5
- [Market study and customer feedback](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Amarket-study-feedback) — Entrepreneurship Development, chapter 2
- [Customer segmentation and target segment](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Acustomer-segmentation-bases) — Entrepreneurship Development, chapter 4
- [Testing key business assumptions](https://www.bctengineer.com/question.md?key=semester_7%2Fentrepreneurship_development%3Atesting-key-assumptions) — Entrepreneurship Development, chapter 3

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- [EVA; 60 days, 25% work, Rs 12,00,000](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aeva-numerical-60-days-25-percent) — Project Engineering, chapter 4
- [CI and sample size: overcharged households](https://www.bctengineer.com/question.md?key=semester_5%2Fprobability_and_statistics%3Apostal-survey-overcharged-ci-sample-size) — Probability and Statistics, chapter 7
- [Embankment 1,00,000 m³ excavation](https://www.bctengineer.com/question.md?key=semester_4%2Fsoil_mechanics%3Aembankment-volume-weight-excavated) — Soil Mechanics, chapter 2