TAM - SAM - SOM

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Key Takeaways:

  1. TAM (Total Addressable Market):

    • TAM represents the total market demand for a product or service.
    • It includes every potential customer or user who might be interested in the offering.
    • TAM is often used for long-term strategic planning and provides an upper limit on market potential.
  2. SAM (Serviceable Addressable Market):

    • SAM is a subset of TAM that focuses on the portion of the market that your business can effectively reach and serve.
    • It considers factors such as geographical limitations, market segmentation, and the capacity to reach and support customers.
    • SAM is crucial for determining market entry strategies and resource allocation.
  3. SOM (Share of Market):

    • SOM represents the specific portion of the market that your business aims to capture or is capable of capturing.
    • It is typically expressed as a percentage and reflects your business's realistic market share goals.
    • SOM guides your short-term and tactical marketing efforts.

How to Use it:

  1. TAM (Total Addressable Market):

    • Calculate TAM by multiplying the potential number of customers or users by the average revenue per customer.
    • Use TAM to assess the overall market size and growth potential.
    • TAM can help attract investors by demonstrating the market's attractiveness.
  2. SAM (Serviceable Addressable Market):

    • Identify and segment the market to define your SAM accurately.
    • SAM helps refine your target audience and geographical focus.
    • Determine market penetration strategies based on your SAM.
  3. SOM (Share of Market):

    • Set realistic market share goals based on your capabilities and resources.
    • Track your market share over time and adjust strategies as needed to achieve your SOM.
    • SOM guides marketing and sales efforts, helping to measure success in capturing market share.

Example:

Let's consider a startup that offers a unique ride-sharing service for commuters. They want to analyze their TAM, SAM, and SOM:

In this example, the startup's TAM represents the total potential market demand for their service. The SAM narrows this down to a realistic portion that they can effectively target. Finally, the SOM sets a specific market share goal based on their resources and capabilities, guiding their short-term business strategy.