Market Sizing in Product Management

TAM, SAM, SOM

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Market sizing is an essential aspect of product management, as it helps product managers understand the potential market opportunity for their product or service and make informed decisions about resource allocation, pricing, and marketing strategies. TAM, SAM, and SOM are three common metrics used to break down and understand this market size.

TAM, SAM, SOM

Total Available Market (TAM):

• TAM refers to the total market demand or revenue opportunity for a product or service.
• It represents the maximum potential size of the market for a particular product or service assuming there are no competitive constraints or limitations.
• TAM represents the entire market for a specific product or service, regardless of the current market saturation or existing competition.

TAM = Total Market Size * Market Share Percentage

Serviceable Available Market (SAM):

• SAM represents the segment of the TAM that a product or service can realistically target and serve.
• Unlike TAM, SAM takes into account factors such as geographical constraints, regulatory limitations, and market segments.
• SAM defines the portion of the market that a company or product can effectively reach and serve given its resources and capabilities.
• It helps product managers focus their marketing and sales efforts on specific market segments that are most likely to adopt their product.

SAM = TAM * SAM Market Share Percentage

Serviceable Obtainable Market (SOM):

• SOM refers to the portion of the SAM that a company or product aims to capture within a specific timeframe, usually expressed as a percentage.
• It represents the realistic market share that a product or company can achieve based on its marketing strategy, competitive positioning, and execution capabilities.
• SOM helps product managers set achievable goals and benchmarks for their product’s market penetration.
• It allows product managers to track their progress and performance relative to competitors and market opportunities.

SOM = SAM * Target Market Share Percentage

Case Study: Market Sizing of iPhone

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1. Total Addressable Market (TAM)

According to Statista, there were approximately 3.8 billion smartphone users globally in 2020.

• Let’s assume this number has grown to 4 billion users by now.
• Apple’s TAM for iPhones would be a portion of this total market.
• Let’s conservatively estimate that 60% of smartphone users globally would consider purchasing an iPhone.

TAM = Total Market Size * Market Share Percentage

TAM = 60% of 4 billion = 0.6 * 4 billion = 2.4 billion potential iPhone users worldwide.

2. Serviceable Addressable Market (SAM)

• Apple primarily focuses on developed markets such as North America, Europe, and parts of Asia, where premium smartphones have high demand.
• According to Apple’s financial reports, they typically capture around 15–20% of the smartphone market share in these regions.
• Let’s conservatively estimate Apple’s SAM within these regions at 15% of the market.

SAM = TAM * SAM Market Share Percentage

SAM = 15% of 2.4 billion = 0.15 * 2.4 billion = 360 million potential iPhone users in developed markets.

3. Serviceable Obtainable Market (SOM)

• Apple aims to capture a significant portion of its SAM within a specific timeframe.
• Let’s set a SOM goal for Apple to capture 30% of the premium smartphone market share in developed markets within the next year.
• Premium smartphones typically represent the higher-priced segment of the market where Apple competes with flagship models.

SOM = SAM * Target Market Share Percentage

SOM = 30% of 360 million = 0.30 * 360 million = 108 million iPhones sold in developed markets within the next year.