How to calculate TAM, SAM, and SOM?
The TAM SAM SOM Model helps you map out your market size and lets you calculate the market share that you want to capture…
You have a product or service but don’t know exactly how to formulate a good go-to-market strategy.
There are dozens of different marketing models out there, but there’s not one that identifies what your target markets will be.
- What TAM SAM SOM is
- How to fill in the TAM SAM SOM Canvas
- And how to avoid falling into common mistakes
The TAM SAM SOM model is best known by people who want to convince investors that the market they want to conquer is big enough to deliver a high Return on Investment (ROI).
Total Addressable Market (TAM)
How big is the largest market?
The TAM is the total market you could serve with your product or service.
It represents the maximum revenue you could make in the long run if you captured 100% of the market.
The Total Addressable Market (TAM) is important for startups and existing businesses because the estimates of effort and funding required allow them to prioritize specific products, customer segments, and business opportunities. TAM provides a viable value proposition and helps answer the question of who could (theoretically) buy the product. In other words, it describes the total revenues that a company could theoretically make if it had an all-encompassing monopoly with its product or service.
In calculating the TAM, discard any factors that could prevent the company from achieving this state. Specifically, ignore constraints, such as competition, production, and logistical capacity limits, language barriers, geographical distances, etc. when calculating the total addressable market. The TAM shows a prospective investor what is potentially possible if the company could grow into all segments of the market through appropriate additions to the product portfolio and business model.
Serviceable Available Market (SAM)
How big is the market you could reach now
The SAM is a step lower than the TAM, because you are still limited by, for example, the location of your company or the specialization of your company.
SAM is the market that you could actually reach, this will become the market you are going to focus yourself on in the medium term.
The SAM answers the question, “For which part of the TAM is our product appropriate?” The SAM describes the market that you can address with the current business model. It answers the question, what portion of the market participants will realistically buy the products or services, either from us or from someone else? In other words, which part of the TAM would realistically buy our products/services? It’s important to understand that TAM is not a number of customers but rather dollars per year. SAM covers the willingness to pay — a key estimation metric.
The SAM is important for investors because it shows the potential of the business idea in the medium term. The SAM is important for startup founders because it represents the target group for the product. The more precisely you define the SAM, the more efficient and effective will your sales and marketing efforts be. Unless you have a monopoly or unlimited financial resources (deep wallets), capturing 100% of the TAM is almost impossible.
Serviceable Obtainable Market (SOM)
What is the market you can reach with your current resources?
The SOM can be used to attract the largest possible market in the short term with your current resources.
By resources, think of:
- Staff
- Money
- Brand awareness
- Location
- Competition
So basically everything you have now, what’s available or what you have to deal with.
The Serviceable Obtainable Market or Share of the Market is the part of the SAM that the business can realistically serve. The SOM answers the question, “What part of the SAM is realistic for our business model?” It also helps answer the question, “Who will buy the service from us?” In other words, SOM helps identify the part of the SAM that is most appropriate for our business model. Thus, the SOM shows which sales can be achieved by the business. The SOM is a subset of the SAM that is restricted by:
- Natural barriers such as distance or language
- Limited capacity, for example, production capacity or marketing reach
- Loss of market share to competitors