Using TAM, SAM, SOM to Determine Market Size

Determining the size of a market is crucial for any business planning or strategy. By utilizing the concepts of Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM), businesses can gain valuable insights to make informed decisions.

TAM represents the entire potential of a market, including all customers who may have a need for a product or service. It is important to note that TAM estimation does not consider factors such as geographical limitations or budget constraints. Instead, it focuses on capturing the maximum potential audience.

SAM, on the other hand, narrows down the TAM to include only the portion that the business is equipped to target and reach. This requires taking into account factors such as the company’s resources, capabilities, and market reach. By defining the SAM, businesses gain a more realistic view of their market opportunity.

Further refining the SAM is the SOM, which encompasses the specific portion of the market that the business can realistically capture. SOM considers factors like competition, market share, and the company’s unique value proposition. It provides a more accurate understanding of the size of the market that the business can effectively serve.

Using TAM, SAM, and SOM allows businesses to comprehend the potential market size, the portion they can realistically reach, and the specific segment they can successfully capture. By analyzing and interpreting these market factors, businesses can develop strategies that align with their capabilities and maximize their market potential.

Remember, understanding market size is crucial for business success. By adopting a strategic approach and utilizing the TAM, SAM, SOM framework, organizations can make well-informed decisions that drive growth and profitability.

READ MORE  How to Start a Bed and Breakfast

How to Use TAM SAM SOM to Determine Market Size -

Having viewed many business plans, a common and important item missing is a breakdown of TAM, SAM, and SOM.

Wondering what these acronyms mean? Well, you’re not alone—many entrepreneurs are not familiar with these terms.

TAM, which stands for Total Addressable/Available Market, is the total market for your product, regardless of competition.

SAM, which stands for Serviceable Available Market, is the portion of the market you can acquire. For example, your product may only be available in one language, so your SAM would be the subset of TAM that speaks that language.

SOM, or Service Obtainable Market, is the subset of your SAM that you will realistically sell to.

Identifying TAM, SAM, and SOM requires market research, but once you gather the data, you’ll have a better idea of the percentages for each area.

Identifying SOM, or your target market, is important because building a marketing plan around TAM, or everyone, is a waste of resources. Figuring out who will actually buy your product will help focus your reach.

How to Use TAM SAM SOM to Determine Market Size -

Starting a concierge service in your city involves doing tasks and running errands for busy people. The TAM, or total available market, represents all potential customers in your town who may require assistance. For instance, if your town has 150,000 people, excluding those under 18 and other non-purchasing groups, your potential demand may be around 50,000 people, or 33% of the population.

Next is the SAM, or serviceable available market, which refers to the portion of your TAM that your business specifically targets. Suppose your business model aims to serve individuals aged 35 to 55 with small children and disposable income. Upon analysis, you find that this group consists of 20,000 people, accounting for 40% of your TAM.

READ MORE  How to Increase Revenue for Your Bakery

Finally, the SOM, or serviceable obtainable market, represents the realistic portion of your SAM that your current business model can serve. If you have three employees and can only provide services within a 2-mile radius of downtown, what percentage of your SAM (20,000 people) can you reach within the first 2 to 3 years? Assuming your company can effectively serve 100 people per month or 1,200 people per year, your SOM equates to approximately 6% of your SAM.

When seeking funding, investors will likely request this information in your business plan. Conducting market research beforehand validates your market potential and is advisable before commencing the plan’s writing process. To summarize, understanding TAM, SAM, and SOM is crucial for business planning and market evaluation.

Leave a Reply

Your email address will not be published. Required fields are marked *