Key Takeaways:
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.
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.
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:
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.
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.
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:
TAM (Total Addressable Market):
- Total population of their target cities: 2 million people
- Average annual spending on commuting services: $500 per person
- TAM = 2 million people * $500 = $1 billion
SAM (Serviceable Addressable Market):
- Geographical focus: Downtown areas of two major cities
- Market segmentation: Daily commuters who use public transportation or taxis
- Estimate of the SAM: 200,000 people
- Average annual spending on commuting services within SAM: $400 per person
- SAM = 200,000 people * $400 = $80 million
SOM (Share of Market):
- Startup's goal is to capture 10% of the SAM within the first year.
- SOM = 10% * $80 million = $8 million
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.