While the world of marketing is ever-changing, some things remain constant. The most important thing to remember in your marketing efforts is that there are three types of campaigns you should be running at all times: testing, scaling, and standing by. These three "musketeers" can help you achieve success on a consistent basis!
With all of the enthusiasm that comes with beginning a new business and estimating the profit potential of its industry or anticipating a sales goal for your firm. It is important to remember to keep these figures grounded in reality.
If you do not, you risk entering a market with insufficient market size to persuade investors to back you, or you risk setting an unrealistic sales goal for your company and burning out your personnel.
To assist you to avoid these problems, we have created a tutorial that will show you how to calculate the total addressable market, serviceable addressable market, and share the market for your industry.
What Are TAM, SAM, And SOM?
TAM (Total Available Market) refers to a product's or service's total market demand.
The SAM, or Serviceable Available Market, is the portion of the TAM that your products and services target and that is within your geographic reach.
The component of SAM that you may capture is called SOM, or Serviceable Obtainable Market.
We will be talking about TAM, SAM, and SOM in detail further, read below!
TAM - Total Available Market
TAM refers to a product's or service's entire market demand. It's the most money a company can make in a given market by selling its product or service.
For enterprises to objectively analyze a certain market's growth potential, the total addressable market is the most helpful metric.
SAM - Serviceable Available Market
You will almost certainly be unable to service your whole addressable market due to the limits of your business strategy (such as specialty or regional limitations).
Businesses can use serviceable addressable markets to define their aims by objectively estimating the portion of the market they can obtain.
SOM - Serviceable Obtainable Market
Unless you have a monopoly, it is unlikely that you will be able to capture 100% of your serviceable addressable market. Even if you just have one competition, convincing an entire market to buy your goods or service would be incredibly challenging.
That is why determining how many clients will benefit from purchasing your goods or service requires measuring your serviceable obtainable market. Serviceable Businesses can use the available market to decide their short-term growth goals.
Let's Understand These 3 Marketing Musketeers With An Example!
Let us take a step forward to understand TAM, SAM, and SOM with the example given below.
Assume you are beginning a fast-food franchise. The global fast-food restaurant market would be your TAM. TAM might be generated as revenue if you were present in every country and had no competition, but that will not be the case!
Practically it is not the case. You are launching your restaurant chain in two cities where fast-food demand may be approximated based on the population, their eating patterns, and the income earned by fast-food restaurants in cities with similar demographics.
That is your Serviceable Available Market: the demand for the things you are selling that is within your reach. To put it another way, if you were the only fast food in town, you'd make SAM.
There are other fast food establishments in town now. . .
As a result, you can only hope to catch a small portion of your SAM. Most likely, you will draw fast-food devotees who live or work near your restaurants, as well as a small number of folks from further afield who are prepared to give your chain a try for fast-food variety. This is the SOM for you!
As we know every business needs capital, to begin with which is usually given by the investors. This is why TAM, SAM, and SOM hold so much importance in the market. This will help in understanding the psyche of your investor if you are looking for one. It will be helpful to know how to rightfully use investment even if the money utilized is not from an investor but yours!
Why Do TAM, SAM, And SOM Hold Such Importance?
Put yourself in the shoes of an investor. You must provide a target return to your investors, which entails both de-risking the investment early (i.e. determining whether the start-up has a market with the smallest amount of money available) and investing in prospects with significant upside potential (i.e. huge market size).
The SOM and SAM aid in the de-risking of an investment, while the TAM allows for the evaluation of the upside potential.
The Serviceable Obtainable Market is your short-term goal, and hence the most important: if you can't succeed on a small portion of the local market, you will never be able to capture a huge portion of the worldwide market.
As an investor, I want you to have a reasonable goal in mind, and I will evaluate you based on your ability to meet that goal. To be realistic, your SOM must include:
Your SAM and the strength of your competition:
It is unlikely that you will gain a 50% market share in the next six months. As a result, your Serviceable Available Market must be an acceptable fraction of your SOM.
The capacity to reach your SOM assures the investor that he will not lose his shirt. SAM serves as an excellent sanity check to determine the plausibility of obtaining the market share predicted by the Serviceable Obtainable Market, as well as a proxy for your company's short-term upside potential.
If you can supply SOM on time, you are capable and credible, and you may be able to expand market share and penetrate the SAM more deeply, resulting in a positive return on investment.
The Total Available Market is the next step. Now, after you have proven your capacity to break into a local market and de-risked the investment, the investor can start thinking about how you can expand and enhance the company's penetration inside the TAM.
SOM is for short-term sales potential, SOM / SAM stands for market share, and TAM stands for scaling potential. All of these factors play a part in evaluating an investment opportunity, and the emphasis should be on obtaining the most accurate data rather than the largest possible numbers.
I hope that this post has given you a better grasp of not only their abbreviations but also how significant TAM, SAM & SOM are in the vast field of marketing. Please go through every detail above with utmost attention as this will help you understand the market well !