As a marketer, I typically discover myself sitting down at my desk with a calculator to do some primary math. And more often than not, I’m in a kerfuffle with three acronyms: TAM SAM SOM.
Calculating your whole addressable market (TAM), serviceable addressable market (SAM), and serviceable obtainable market (SOM) might be useful past the realm of simply advertising.
Enterprise house owners can use these calculations to find out the viability of a enterprise. Product groups can validate new product choices. However that’s simply the tip of the iceberg with regards to the potential of the TAM, SAM and SOM trio.
Ignoring these numbers might be detrimental. You might enter a market that doesn’t have a big sufficient market measurement to persuade buyers to again you, or you could possibly set an unrealistic income objective for your online business and burn your staff out.
That can assist you keep away from these points, I’ve put collectively a information that’ll educate you precisely learn how to calculate your trade’s whole addressable market, serviceable addressable market, and share of market.
Desk of Contents
TAM SAM SOM
TAM, SAM, and SOM are acronyms for 3 metrics to explain the market your group operates in — Complete Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market.
These metrics are key parts of a marketing strategy, significantly as you craft your advertising and gross sales technique, set lifelike income objectives, and select to enter the markets which are price your time and assets.
Earlier than I break down learn how to use these in your online business, let’s get clear on what TAM, SAM, and SOM are and their relationship with each other.
TAM SAM SOM Definitions
In the event you’re new to TAM SAM SOM, it’s straightforward to really feel such as you took a unsuitable flip someplace and landed in alphabet soup.
However, I would like you to know that TAM, SAM, and SOM are merely overlapping metrics that make it simpler to fine-tune your marketing strategy, determine achievable objectives, and perceive the potential income and operational impacts of sure enterprise choices.
So let’s break them down.
TAM (Complete Addressable Market)
TAM Definition: The utmost potential demand of a selected market.
I do know it could actually appear to be discovering this info can really feel like an enormous job, so I’ll present you how to calculate TAM under.
Within the meantime, to simplify it additional, whole addressable market or TAM refers back to the whole market measurement — extra particularly, the demand for a services or products. It’s the utmost quantity of income a enterprise can generate by promoting its services or products in a selected market.
Complete addressable market is most helpful for companies to objectively estimate a selected market’s potential for progress. This information additionally helps corporations determine product market match.
SAM (Serviceable Addressable Market)
SAM Definition: The dimensions of the TAM you possibly can moderately goal as you construct your viewers.
Because of the limitations of your online business mannequin, which could embody your specialization or geographic limitations, amongst different variables, you’ll have a tricky time servicing your whole addressable market.
SAM is a section of TAM you need to use to determine the addressable potential of a market section, or the quantity you possibly can realistically market to, making it simpler to estimate income and viewers targets.
Serviceable addressable market is most helpful for companies to objectively estimate the a part of the market they’ll purchase to determine their targets.
SOM (Serviceable Obtainable Market)
SOM Definition: The dimensions of the SAM you possibly can doubtlessly convert.
Except you are a monopoly, you almost certainly can’t seize 100% of your serviceable addressable market. Even when you solely have one competitor, it might nonetheless be extraordinarily troublesome to persuade a whole market to solely purchase your services or products.
That’s why it’s essential to measure your serviceable obtainable market to estimate what number of clients would realistically profit from shopping for your services or products.
Serviceable obtainable market is most helpful for companies to find out short-term progress targets. It might additionally assist with aggressive consciousness and strategizing.
Why TAM SAM SOM Issues
TAM, SAM, and SOM are important to enterprise technique and progress planning. It is because these metrics present how a lot alternative a selected market holds at each stage of enterprise progress.
TAM SAM SOM can also be helpful as a result of it’s a easy and succinct method to current the worth of an thought. This information provides groups an thought of the audience and revenue alternatives for a market or area of interest.
These metrics also can assist companies share key insights with buyers if they’re in search of funding. The method makes it simpler to make choices that impression progress.
For instance, say you do not have a transparent image of the best section on your SAM. This might make your serviceable addressable market too massive, which might then impression your SOM.
“In my expertise, these instruments are extraordinarily informative when figuring out learn how to area of interest. Take the time, and perceive the chance or lack thereof along with your new goal,” says Lori Highby of Keystone Click on.
Highby says as her staff niches additional of their enterprise, they use numbers from market analysis stories from corporations like Gartner, Forrester, and many others. in addition to authorities and commerce associations to calculate TAM, SAM, and SOM. They’ll then “discover out which area of interest is probably the most viable,” says Highby.
How one can Use a TAM, SAM, and SOM for Your Enterprise
I do know that each one this sounds nice, however it may be powerful to grasp learn how to really do TAM, SAM, and SOM calculations and use the info for your online business. So, let’s break this down into some steps you possibly can comply with.
Step 1. Outline your market.
Earlier than you are able to do a TAM SAM SOM, it is advisable determine what your market is, and what you’re advertising — a service, a selected product, or perhaps a class of merchandise.
To calculate this, get as clear and particular as you possibly can about your viewers, factoring elements like:
- Geographic location(s).
- Gender.
- Age.
- Traits.
- Drawback your supply solves.
Step 2. Use a TAM calculation to search out the whole market measurement.
Now, it’s market analysis time — dig in to learn how many potential clients are on the market and the potential income worth if everybody in that market purchases.
For instance, if I’m ladies between the ages of 25 and 65, I’d wish to learn how many ladies match that definition. Then, I’d calculate the potential income if all these hundreds of thousands of girls purchased your product.
Step 3. Use a SAM calculation to search out the dimensions of your potential market.
Within the instance above, let’s say I work for a high-end luxurious ladies’s skilled clothes retailer trying on the U.S. market.
So, I wish to discover what number of ladies match the demographic of ages 25 to 65 within the U.S. after which calculate the potential income.
Step 4. Use a SOM calculation to search out your potential market share.
Individuals dwelling paycheck to paycheck aren’t more likely to store my model, and ladies who don’t work in workplaces or don’t usually attend skilled features are much less more likely to be my goal market.
Since my SOM calculation is about estimating the portion of the SAM I can realistically market to, I’d discover it by refining my market by revenue and/or employment. I can then refine it additional by figuring out the portion of that market I’m more likely to seize, given the aggressive panorama.
Step 5. Determine alternatives and challenges.
Now that you’ve got the calculation, it’s time to dig into the info and strategize. I’ll begin by asking questions like:
- What’s the market doing now?
- What do your rivals do properly? Poorly?
- Any gaps out there?
- Are there any segments of the market that aren’t being served?
Then, after I’m armed with solutions, I can take into consideration methods for standing out from the competitors and leaning into my strengths to achieve my market.
TAM, SAM, and SOM Template
Now that you understand what every of those acronyms is and what they’re used for, let’s get into the nitty-gritty of learn how to calculate TAM, SOM, and SAM.
Doing so requires superior market analysis forward of time, however listed below are the formulation when you’re in a position to get these figures.
Complete Addressable Market (TAM) Calculation
One of the simplest ways to calculate whole addressable market is by working a bottom-up evaluation of an trade:
- Depend the whole variety of clients in a market.
- Determine the common annual income of every buyer on this market.
- Multiply the 2 numbers.
TAM is helpful for:
- Beginning a brand new enterprise.
- Launching a brand new product, service, or product class.
- Reviewing market methods.
- Revising or revisiting your marketing strategy.
- Figuring out alternatives to extend market share.
Instance TAM Calculation
Utilizing our pattern high-end skilled ladies’s attire for this calculation, I realized that the worldwide ladies’s attire market was US$1.002 trillion in 2023 (IMARC group). Assuming progress of three.3% every year, we will estimate that quantity to be $1.035 trillion in 2024.
Professional tip: If you wish to make your life simpler when calculating TAM, use HubSpot’s TAM evaluation template. It fully demystified the idea for me and helped me perceive not simply tam, but additionally the ACV itself.
Serviceable Addressable Market (SAM) Calculation
To calculate your serviceable addressable market:
- Depend up all of the potential clients that will be a very good match for your online business.
- Discover the common annual income of a majority of these clients in your market.
- Multiply the 2 numbers.
SAM is helpful for:
- Planning new advertising methods and gross sales techniques.
- Doing market analysis and aggressive evaluation.
- Figuring out product viability.
Instance SAM Calculation
To proceed utilizing our pattern high-end ladies’s skilled attire model, keep in mind we have been ladies ages 25-65. Utilizing information from the most recent census, there are 86 million ladies in that vary.
Let’s say that every 12 months, these 86 million ladies spend $2,000 on common yearly on attire.
86 million x $2,000 = $172 billion SAM
And searching on the numbers, we’re not too far off. The U.S. ladies’s attire market was estimated at $191.4 billion in 2024.
Serviceable Obtainable Market (SOM) Calculation
To calculate your serviceable obtainable market:
- Divide your income from final 12 months by your trade’s serviceable addressable market from final 12 months.
- This proportion is your market share from final 12 months.
- Multiply your market share from final 12 months by your trade’s serviceable addressable market from this 12 months to search out your new SOM.
SOM is helpful for:
- Budgeting for operations and advertising.
- Creating achievable, cheap progress plans.
- Creating advertising and gross sales methods.
Instance SOM Calculation
Now right here’s the place we get extra hypothetical. As a result of the TAM and SAM converse to whole markets obtainable, and SOM speaks to extra lifelike market share, we’re going to make up some numbers.
Our high-end ladies’s skilled attire model has a better value per merchandise however most clients are seemingly to purchase fewer items, and we’re more likely to have fewer clients than, say, Walmart.
For the sake of spherical numbers, let’s say:
- We now have $500 million in income for final 12 months.
- The $172 billion SAM was 2023 numbers.
- The $191.4 billion SAM is the 2024 progress.
Notice: I’m conscious that these numbers symbolize unrealistic year-over-year market progress charges — I’m merely offering them for the needs of exhibiting you the calculations in motion.
$500 million / $172 billion 2023 SAM = 0.003% market share
0.003% * $191.4 billion 2024 SAM = $574.2 million
Meaning, primarily based on these fully fictional numbers that present drastically rising demand, my fictional attire firm can moderately count on 15% progress over final 12 months.
And if that’s correct, it has important repercussions for budgeting, operations, and manufacturing.
However except there’s one thing drastic taking place within the massive image that decreased spending in 2023 and elevated it in 2024, there’s a very good likelihood these numbers should not lifelike, so it’s necessary to return to the numbers to verify we’re factoring in issues precisely.
Proper Dimension Your Market Alternatives with TAM, SAM, and SOM
After I began my advertising, TAM, SAM, and SOM felt like abbreviation-heavy jargon. It was simpler to simply nod alongside and let the numbers go in a single ear and out the opposite.
Nonetheless, immediately, I do know these numbers matter. I even run the calculations myself!
As you get began, remember the fact that these figures will largely be estimates to tell your technique. The extra market analysis you do and the extra historic information you construct up, the extra exact your planning might be.
Do not simply determine the alternatives in your market. Use your analysis to resolve who you wish to goal and the way you propose to have interaction them along with your merchandise. Then, use these templates to make your plans clear.
Editor’s observe: This put up was initially revealed in March 2019 and has been up to date for comprehensiveness.
