Understanding and calculating total addressable market (TAM) for startups

UK startups raised £9 billion in 2024,¹ but 35% failed because there was no market for what they built.² Before you spend years on a product, you need to know if enough customers exist to make it viable. Investors will ask about your Total Addressable Market (TAM) in almost every pitch meeting because they need proof the opportunity justifies the risk.

This guide covers how to calculate TAM, why it matters for fundraising, and how payment Wise Business can handle cross-border transactions when you expand into new markets.

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What is Total Addressable Market (TAM)?

Total Addressable Market (TAM) is the maximum revenue your business could generate if you captured 100% of your target market. Think of it as the full size of the opportunity before you factor in competition, resources, or how quickly you can grow.

TAM answers a simple question: how much money is up for grabs? If you’re building accounting software for UK small businesses, your TAM includes every small business in the UK that could potentially pay for your product. If you’re opening a coffee shop in Manchester, your TAM is every coffee purchase that could happen in your catchment area.

Investors ask for TAM figures to assess whether your market is large enough to justify the risk. A £10 million TAM might support a lifestyle business. A £10 billion TAM could support a unicorn. The number alone doesn’t tell the full story, but it sets the ceiling for what’s possible. You’re not aiming to capture all of it, no company does, but you need to show there’s enough room to build something substantial.

How to calculate Total Addressable Market (TAM)

You can calculate TAM in three different ways. Pick the method that fits your data and the newness of your product.

The Top-Down Approach

In this approach, you start with a broad industry figure and filter down to your specific market.

Say you're launching project management software for UK construction firms. You'd start by finding industry reports on the total project management software market, then apply filters for your region (UK only) and your sector (construction). Each filter narrows the number until you reach your TAM.

This method is fast because you're using published research from firms like Gartner or IBISWorld. The problem is that those reports rarely define markets the same way you do. If their "project management software" category includes tools you don't compete with, your TAM will be inflated. Investors treat top-down numbers as a rough check, not proof you understand your market.

The Bottom-Up Approach

Here, you count your potential customers and multiply by your annual price. Let’s assume you own a construction software targeting UK firms. You’ll start with the total number of construction companies in the UK: 364,514.³ Most of these are sole traders or very small operations.

Assuming your software is built for established companies with project teams, you're really looking at medium to large firms, let's say companies with 50+ employees. Then, you set your annual subscription at £2,500. If there are roughly 35,000 companies in your target segment, your TAM calculation is:

35,000 × £2,500 = £87.5 million

The strength of this approach is that you're using real numbers you can defend. You know your pricing. You can point to government data showing how many construction companies exist. You've defined exactly which segment you're serving. When an investor asks how you got to £87.5 million, you can walk them through each assumption.

The Value Theory Approach

Value theory works when you're building something new and don't have comparable products to reference. Instead of looking at what exists, you estimate what customers will pay based on the value you create.

Take construction software that automates scheduling. If it saves a project manager 10 hours a week, and their time costs £50 per hour, you're creating £26,000 in annual value per customer. You might price at 10% of that value, which is £2,600 per year. Multiply that by the number of project managers who face this problem, and you've got your TAM.

This method needs more assumptions than the others. You're guessing at both the value customers perceive and what portion of that value they'll actually pay for. Use it when your product doesn't fit neatly into existing categories or when you're genuinely changing how people work.

TAM vs. SAM vs. SOM: understanding market subsets

TAM tells you how big the prize could be. SAM and SOM tell you what you can actually win.

Serviceable Addressable Market (SAM) is your realistic slice of the TAM. Think of it like this: if you’re selling project management software, your TAM might be every construction company in the UK. But you can’t serve all of them because:

• You only work with firms that have 50+ employees
• Your product is built for residential construction, not commercial
• You’re UK-based and don’t have international support yet
• Your pricing doesn’t work for sole traders or massive enterprises

So if your TAM is £87.5 million, your SAM might drop to £35 million once you account for what you can actually deliver.

Serviceable Obtainable Market (SOM) is what you’ll capture in the next three to five years. You’re not getting 100% of your SAM , you’ve got competitors, a limited marketing budget, and you can only hire salespeople so fast. Most startups grab 1-5% of their SAM early on.

Take that £35 million SAM. If you capture 3% over three years, your SOM is £1.05 million. That’s your real revenue target.

Investors care about all three because TAM proves the market is big enough to bother with. SAM shows you know who actually buys from you and SOM proves that you’ve worked out what’s achievable with the resources you have.

Benefits of calculating TAM as a startup

Working out your TAM does more than give you a number for investor decks. It also affects how you build and grow your business. Here are some benefits of calculating TAM as a startup.

Estimating Maximum Revenue Opportunity

TAM sets your revenue ceiling. If your total addressable market is £50 million, you know that’s the absolute maximum you could make if you captured every single customer. Most startups won’t hit 100% market share, but the number tells you whether the opportunity is big enough to justify the work.

A £5 million TAM might support a decent small business. A £500 million TAM could support a venture-backed company aiming for serious scale. Investors typically want to see huge amounts in TAM before they’ll consider writing cheques. A small TAM usually means the returns won’t justify their risk.

Identifying New Opportunities for Growth

Calculating TAM forces you to map out your market properly. You’ll spot adjacent segments you hadn’t considered. A company selling HR software to UK tech startups might realise their TAM extends to all UK SMEs, or that European expansion could triple their addressable market.

This matters when planning your product roadmap. If adding a feature opens up a new customer segment worth £100 million, that’s a different decision than building something that serves your existing £20 million market slightly better.

Attracting Investors (Venture Capital, Private Equity)

Investors ask about TAM in almost every pitch meeting. They’re trying to figure out if your market is large enough for them to make returns that matter. Venture capital firms need companies that can grow into £100 million+ businesses, and a small TAM kills that possibility before you start.

A solid TAM calculation shows investors you understand your market and you’ve thought through how big this could get. Getting it wrong, either wildly inflated or impossibly narrow, raises questions about whether you actually know your customers.

Manage your finances across markets with Wise Business

Once you’ve calculated your TAM and started planning international expansion, you’ll need a way to handle payments across different currencies without losing money to poor exchange rates and hidden fees.

Wise Business helps with exactly that. You can open an account for £50 (Advanced plan) or for free (Essentials plan) and manage your company’s finances in 40+ currencies from one platform. Whether you’re paying suppliers or receiving payments from customers across multiple markets, Wise uses the mid-market exchange rate with no markup.

The Essential plan (free) covers the basics most startups need when they’re testing new markets. You can send money to 140+ countries, set up batch payments to pay multiple people at once, and issue business cards for your team that work in 160+ countries across 40+ currencies. You’ll also earn cashback on eligible card spending, connect your accounting software like Xero or QuickBooks, and access Wise Interest to earn returns on your GBP, USD, and EUR balances.

If you need to receive payments from international customers, for a small one-off fee, the Advanced plan adds account details in 8+ currencies so clients can pay you as if you’re a local business. You’ll also get tools to generate invoices, create payment links, set up QuickPay QR codes, and manage direct debits - all useful when you’re actively selling into new markets and need professional payment infrastructure.

Create your Wise Business account and start managing cross-border payment while working through your market expansion strategy.

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*Disclaimer: The UK Wise Business pricing structure is changing with effect from 26/11/2025 date. Receiving money, direct debits and getting paid features are not available with the Essential Plan which you can open for free. Pay a one-time set up fee of £50 to unlock Advanced features including account details to receive payments in 22+ currencies or 8+ currencies for non-swift payments. You’ll also get access to our invoice generating tool, payment links, QuickPay QR codes and the ability to set up direct debits all within one account. Please check our website for the latest pricing information.

FAQs

How do I find TAM data for my specific market?

Start with UK government statistics from ONS for business population data. Trade associations publish industry reports (often free for members). IBISWorld and Statista have market sizing, though many reports sit behind paywalls.

For B2B, Companies House data shows registered businesses by sector. The scrappy approach: search LinkedIn for job titles matching your customer profile and extrapolate from there.

Can my TAM be too big?

Yes. Claiming a £500 billion TAM tells investors you haven’t thought hard enough about who actually pays for your product. A focused £200 million TAM beats a vague £10 billion TAM every time. Investors would rather back someone chasing 10% of a £100 million market than 0.01% of a £1 trillion market.

Should I calculate TAM for just the UK or globally?

Depends where you’re operating. If you’re UK-focused for the next 3-5 years, show UK TAM in your main numbers and mention global opportunity as expansion potential. If you’re launching internationally from day one, show global TAM but break out your initial target markets. Don’t claim global TAM if you can’t serve global customers yet.

Sources used:

Sources last checked: 19/12/2025