Founder Playbook · Sub Club by RevenueCat
7 tactics from Paul Ganev
App Growth: Defining Addressable Market for Apps — TAM SAM SOM explanation
Watch the full episode“There's some great use cases for TAM, the big one being really like a sales tactic to be candid. From a TAM standpoint you're going out to investors talking about how big the opportunity is. The flaws come when you start trying to calculate the addressable audience from a modeling standpoint and what you should do strategically from product strategy and monetization strategy.”
TAM is a sales tactic — SAM is what should drive strategy
Use TAM for the investor pitch and the dream. The moment you use it to model product or monetization strategy, you'll be wrong. Operationally, you want SAM — the serviceable addressable market that actually reflects who can and will pay.
“They'll say okay well TAM's 100 million people and we're going to go and acquire like 5% and call it a day. In reality when you start digging in you find out that our product isn't something that's going to service all 100 million of these people — it's going to service some fraction.”
The 5%-of-TAM fallacy — the 100M never existed as addressable
The classic founder modeling mistake: pick a big TAM, assume you'll capture some round percentage, build a plan on it. The 100M was never addressable in the first place. The 5% number is fiction layered on top of fiction.
“Let's say we're a golf company and you say there's 50 million golfers in the US, that's our TAM. You'll find pretty quickly that there aren't 50 million golfers who play golf on a frequent basis, maybe 20 million. You're omitting a key factor which is commitment.”
Commitment is the variable founders forget — 50M golfers ≠ 50M subscribers
For subscription products the gating variable isn't whether someone fits the category — it's how committed they are. Surfline doesn't care how many people have surfed once; it cares how many surf often enough to pay. Cut your TAM by commitment frequency before you model anything.
“The market research you find out there is typically just going to be very high level and you're going to have to cut it down. If you have great analytics on your platform you can learn enough about your consumers to figure out what segmentation actually matters — like what your SAM should be.”
Triangulate real SAM from your own product analytics, not market research
Don't trust top-line market research alone. Combine it with your own analytics on who actually uses and pays, then segment by the variables (geography, demo, commitment) that meaningfully change serviceability. SAM is triangulated, not looked up.
“If your TAM is really small or your serviceable addressable market is really small, you might want to weight your investment in ARPU more than you do subscription growth. You might say okay really we might reach saturation a little bit quicker than we originally thought — we should focus on going ARPU.”
Small SAM → invest in ARPU before subscriber growth
Niche SAM dictates the playbook. If you'll saturate subscriber acquisition fast, the lever becomes pricing, tiers, and add-ons — not more signups. Big TAM lets you optimize for volume; small SAM forces you to optimize for value per user.
“Maybe the strategy is, hey we know we're going to get pretty significant market share within this audience — we should look at adjacent audiences or new geographies. If you look at the growth of Spotify, the growth isn't coming predominantly from the US anymore, they've realized we're starting to saturate.”
Once you saturate the home market, go adjacent or geographic (Spotify)
Knowing your SAM tells you when to stop pushing the home market and start expanding sideways. Spotify did this geographically once US growth flattened — the same logic applies to any niche-saturated app: expand the audience, expand the geography, or expand the product.
“You should always have TAM in the back of your mind because as a product leader, your product is going to continue to evolve. Serviceable for me in the future is different than what it is today. It's always important to figure out what the delta is between your TAM and your currently serviceable addressable market.”
SAM evolves as your product evolves — keep TAM in view as the ceiling
Today's SAM is bounded by today's product. As you build, the line moves. Keep TAM in view as the ceiling you're building toward — not the number you plan against — and watch the delta close as new features make previously-non-serviceable users serviceable.