This article is the third in a series about TAM penetration, written for leaders new to the concept, organizations struggling with revenue optimization, and organizations on the cusp of strategic planning or goal-setting efforts.
TAM penetration measures relative position in an external market of direct and indirect competitors. The external market will always be changing, so absolute market share is at best a guess. Competitors might merge, a key funder might disappear, a currency might crash. Etc.
But as a relative target, TAM penetration is remarkably stable. It measures positioning and potential share of market relative to competitors rather than predicting exact, quantifiable future outcomes.
Using a relative target for long-term growth keeps strategic plans actionable. I have seen many a 5-year strategic plan fully invalidated because the economy changed, a key staff member quit, or a specific grant didn’t come through as expected. TAM penetration, on the other hand, is resilient to external volatility and anticipates necessary internal evolution.
Defining TAM in theory
This series is written for leaders new to the concept of TAM penetration, and my use of the concept is generalized for different kinds of organizations and contexts. If you’re already familiar with TAM, you may have encountered more elaborate frameworks. I want to acknowledge those now, with appreciation for their value in specific contexts, then explain why I think they often distract more than they clarify.
Competing frameworks distinguish between several nested concepts:
- Total market, meaning the absolute size of an existing category (for example, global automobile sales).
- Total Addressable Market (TAM), sometimes defined as that entire total market, and other times as the portion of it a specific business can reasonably reach.
- Serviceable Addressable Market (SAM), introduced when TAM is treated as the total objective market and needs to be narrowed.
- Serviceable Obtainable Market (SOM), describing what a business can realistically capture in the near term without changing its operating model.
These gradations can be useful for enterprise-scale manufacturing, scaled SaaS businesses with product-led growth loops, or situations that depend on short-term arbitrage. If you’re not in one of those contexts, the finer distinctions may add a bit of crispness to your thinking, but I’d be cautious… In my experience, they tend to pull attention toward near-term capture at the expense of longer-term positioning.
In my work, I prefer defining TAM as the reachable market from the outset. The word addressable already implies reachability. And in many business models—especially those premised on category disruption—the existing “total market” is not a hard constraint but an input into how large the market could become. Collapsing total market, TAM, and SAM into one thought increases focus and aligns with the underlying math of complex systems (as described by Geoffrey West and others).
SOM is concrete and operational. It’s useful for sequencing and near-term execution. But when SOM becomes the dominant frame for long-term planning or the design of relationship and revenue functions, it narrows ambition to what the organization can already do. As I argued in my last post, that pattern accelerates a crash into the next local maximum rather than enabling scalable growth.
TAM, used properly, does the opposite: it provides a stable external reference frame that disciplines organizational evolution over time.
Defining TAM in practice
TAM is never defined by a single person. It’s a collaborative, interpretive process—a negotiation about direction, not a spreadsheet exercise.
In practice, that collaborative work tends to follow a few broad steps:
- Size and segment the existing market.
Begin with a working model of your external environment, including all meaningful and segmented direct and indirect competitors. These can be sized financially and revisited over time. - Articulate a growth trajectory.
Define how your organization expands relative to these segments—geographically, or through adjacent offerings, new audiences, or category transformation. - Describe a credible “when we win” end state.
Over an ambitious but not fantastical time horizon, describe how the organization advances from niche player to category disruptor to market leader of a transformed category. How far you can fruitfully envision this progression depends on your specific context. - Quantify the logic.
This is where finance leaders, founders, quant jocks, or very capable AI tools come in. The numbers will be knowingly inaccurate, but they will be pressure-tested by boards, funders, and investors not as tablets written in stone, but as tests of all the logic steps above.
At this point, something critical has already silently been resolved.
By defining the organization’s trajectory in market-relative terms, the appropriate goals for relationship and revenue functions become almost inarguable.
From TAM to revenue and relationships
Here’s where something clicks—or should.
In the first article in this series, I noted that TAM penetration can be understood not only as market share capture, but as audience capture. Revenue is maximized by deepening relationships with specific external stakeholders—customers, funders, investors, partners, analysts, press, recruits. Each of these relationships can be modeled as a funnel. Some produce revenue directly, some indirectly, but all are critical to maximizing it.
Once TAM and trajectory are defined, the work of revenue and relationship functions becomes almost inarguable:
- maximize segmented relationship penetration by audience
- maximize segmented revenue penetration by audience
- balance the inherent tradeoffs between short- and long- term revenue
- optimize funnel efficiency and velocity across audiences and channels
- optimize internal cross-functional efficiency to support the above
And yet. Many organizations instead treat goal-setting for Marketing, Development, or Comms as a blank-sheet-of-paper exercise, disconnected from any external frame. Marketing goals end up as initiative lists plus revenue targets—technically measurable, but with no structural logic connecting them. Nonprofit Development functions service existing funders while Comms departments chase impressions and press hits as if those were ends in themselves. The annual planning cycle becomes a negotiation over activities rather than a calibration against position.
TAM penetration resolves this. When you know where you’re trying to go in relative market terms, the goals for every revenue and relationship function become derivable rather than invented. You’re not asking “what can Marketing do this year?” You’re asking “what must Marketing accomplish for us to move from here to there?”
An honest question for CEOs and Executive Directors: if your relationships and revenue teams aren’t working backward from TAM, what are they working from?
Integrated frameworks integrate teams
The logic above aligns with other integrated frameworks I’ve shared over the years—such as viewing both private sector and social sector organizations as “Three Machines” or tracing the bidirectional connections between Total Addressable Market (TAM), Product Market Fit (PMF), Go To Market (GTM) strategy, and Product Channel Fit (PCF).
The value of these frameworks is not that they describe day-to-day marketing work: rather, they illuminate how strong marketers implicitly think. E.g., notice how SEO and AEO guru Brad Smith in a data- and detail-rich teardown uses nested concepts of relative market penetration and dominance—by category, channel, and keyword—to focus his gaze.
It’s TAM penetration all the way down.
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