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exercise1 min readLesson 2.3

TAM/SAM/SOM: bottom-up

Market Analysis · 25 min

The bottom-up approach to TAM/SAM/SOM starts from unit economics and builds up. Instead of narrowing from industry reports, you count individual customers and multiply by what they'd pay. This is typically more credible for startups because it's based on YOUR business model.

Bottom-Up TAM

TAM = Total Potential Customers × Average Annual Revenue Per Customer

Bottom-Up SAM

SAM = Addressable Customers × Your Price Point

Bottom-Up SOM

SOM = (Sales Team Capacity × Win Rate × Average Deal Size × 12) for Y1-Y5

MedTech Bottom-Up Example

Total potential customers: ~45,000 radiology departments globally Average annual revenue per customer: €13,200 (subscription) or €50,000 (device + maintenance) TAM: 45,000 × €25,000 blended = €1.125B SAM: 15,000 reachable × €25,000 = €375M SOM Y3: 8 sales reps × 15 deals/year × €40,000 = €4.8M

Key Takeaways

  • Bottom-up starts from unit economics and builds up to market size.
  • More credible than top-down because it's based on YOUR business model.
  • SOM should be tied to sales capacity — how many reps × deals × deal size.
  • Compare bottom-up with top-down — convergence = credibility.