Defining and Calculating TAM, SAM, and SOM
When it comes to market assessment and sizing, it’s important to understand the concept of TAM, SAM, and SOM. These three acronyms are Total Available Market, Serviceable Available Market, and Serviceable Obtainable Market. They are essential tools used by companies to support critical business decisions such as estimating revenue potential, planning capital expenditures, securing financing, creating growth strategies, and designing supply chains.
Definition of TAM, SAM and SOM
Total Available Market (TAM): Also sometimes called the total available market. TAM refers to the overall revenue opportunity that a product or service has if it achieves a 100% market share. In other words, the total achievable revenue assumes everyone in the market purchases your product or service.
Serviceable Available Market (SAM): Also referred to as the served available market. SAM represents the portion of the total addressable market, or TAM, that you can realistically acquire with your current business model and structure.
Serviceable Obtainable Market (SOM): SOM refers to the revenue you realistically expect to attract from your target audience when considering factors such as competition, pricing levels, customer preferences, and marketing strategy.
Estimating Market Size – The Basis for TAM, SAM, SOM
Estimating the size of a market is no small task. It requires careful consideration of multiple factors, such as geography, customer preferences, and competition. Fortunately, there are several steps you can take to help ensure that your market size estimates are accurate.
The first step to estimating the market size is to do your research. Gather as much data as possible about the industry in which you plan to operate, including statistics about its current size and growth rate. Your findings will give you an idea of how big the market is and provide insight into what markets may be growing or shrinking.
Identify Your Target Audience
Once you have a good understanding of the overall market, it’s time to narrow it down to your specific target audience. Are you targeting customers who are already familiar with your products or services? Or are you trying to reach a new demographic? Once you know your target audience, it will be easier to estimate how large they are compared to the overall market.
Analyzing competitors can help you determine how much of the market they already occupy and give you an idea of what areas may be underserved or untapped. This will also provide insight into what strategies may be successful in capturing more market share.
Once you know your current market share, you can then begin to look at the potential for future growth. This includes researching current industry trends and market saturation levels and considering the impact of future market events based on current projections. It will also help to consider any potential disruptions or changes to the industry landscape that may affect your market size.
Finally, it’s important to consider any industry dynamics that could impact your market size estimates. This includes looking at your competitors’ business models and strategies to capture market shares, such as pricing models and customer loyalty programs.
By incorporating all of the above steps into your market size assessment and analysis, you can ensure that your estimates are as accurate as possible and that your strategies align with the industry’s potential. Knowing the size and potential of your target market can help you make better decisions and ensure that your business is targeting the right markets and setting realistic goals for growth.
The Value of TAM, SAM and SOM
All of the inputs listed above are necessary in calculating an accurate TAM, SAM, and SOM estimate. When successfully developed, these metrics can provide a complete view of the market’s size, scope, and potential. Understanding the nuances of each metric and how to employ them can help businesses make more informed decisions about their target markets and potential opportunities. By evaluating your entire market using TAM, SAM, and SOM metrics, you can better position your business to capitalize on the potential available in your target markets.