PAM, TAM, SAM, SOM
4 main indexes for business evaluation
These abbreviation, which are puzzling at first sight, give an understanding of the market volume for your goods or services.
They are interpreted as follows:
1. PAM — potential available market
2. TAM– total addressable/available market
3. SAM– serviceable available market
4. SOM– serviceable and obtainable market
The correlation between them could be represented in the picture below:
Let’s consider each of the indexes in more details.
· TAM (total addressable/available market)– shows how many customers in the core market are in need of your goods or services (they are not necessarily can afford these products but have a need in them) in the same category of goods and services that you sell.
In other words, if you need to estimate TAM, it is essential to answer the following question: what type of customers can be interested (in need of) in your products and in what volume?
Example: You sell websites for businesses all over Russia. Let’s assume that there are 5 million companies in Russia and 50% of them would like to create a website. In this case TAM volume will be equal to 2,5 million websites. If the average price for one website is ₽30’000 then total available market will be estimated as ₽75 billions.
· SAM (serviceable available market)– is the “customer” part of the total addressable market (TAM) that can be actually reached; it means that this index shows the volume of customers who are ready to buy goods or services in the same category as yours.
Think who and in what volume is ready to buy your products?
Example: You sell websites for retailers. Assume that there are 800’000 companies of this types in the market and 80% of them want to create a website, so, SAM is estimated as 640’000 companies.
· SOM (serviceable and obtainable market) — is the part of SAM, which your company is eager and able to occupy, taking into account the strategic development of this market and competitors actions.
Answer to the following question can help you to understand SOM: who exactly and in what volume will buy your products?
Example: You sell websites for businesses, there are 10 designers and 10 programmers in your company. It allows you to create 100 websites per month. It means that SOM is estimated as 1’200 websites per year.
· PAM (potential available market) — represents the global market of these goods and services without any restrictions of geography and other factors.
Example: in case of website PAM will be represented by global web-development market.
The clear understanding of these indexes is highly recommended for your business. It will be useful to estimate each of them for your company and research the market in order to know more information about similar projects and competitors, which allow you to be more precise in your estimations.