TAM, SAM, and SOM are critical targeting words to remember while putting together your company strategy. Not only will smart investors question about them, but it may also help you define your target market in the best possible way.
A breakdown of the company’s TAM, SAM, and SOM in the marketing part of their strategy is a frequent (and extremely essential) element missing from most business plans, as seen over the years.
Are you unsure what these abbreviations mean? You’re not alone; many business owners are unfamiliar with these words.
What exactly is TAM?
The entire market for your product is called TAM (Total Addressable/Available Market). This includes everyone on the globe who may be interested in purchasing your goods, regardless of prevalent market competition.
What exactly is SAM?
SAM stands for Serviceable Available Materials. The part of the market that you stand the chance to buy is known as the market. Hence, y our SAM would be the subset of the TAM. It speaks the same language that your product is designed for. For instance, your product is only accessible in one language, hence it will indicate the same language.
What exactly is SOM?
The subset of your SAM that you will actually obtain to utilise your product is called SOM i.e., Service Obtainable Market. This is essentially the target market to whom you will first attempt to sell.
How to differentiate between TAM, SAM, and SOM?
Identifying your TAM, SAM, and SOM takes some market research (levels of study vary based on your product and its market potential), but once you have it, you’ll have a clearer understanding of the percentages that correspond to each category.
Why is it essential to know what your SOM is?
Building a marketing strategy around your TAM— in simpler terms, everyone—is a big waste of money. You get that, right? Hence, identifying your SOM, or target market is critical. Identifying who you believe will purchase your goods can help you concentrate your marketing efforts better.
TAM, SAM, and SOM are important parts of your company strategy that may help you attract more investors. It has been confirmed by business plan consultants. Consider how knowing the definitions of these words may help you better identify your target market.
Examples of each TAM, SAM and SOM
Assume you’re establishing a concierge business in your city that focuses on helping busy individuals with chores and errands.
Total available market, your TAM would include all individuals in your community who may require assistance with chores and errands. If your town has, further suppose, 150,000 residents, market research may reveal that the entire potential demand for your company in your city is 33%. (or 50,000 people). You could get at this figure by eliminating individuals under the age of 18 and other groups who are unable to pay for your services.
The part of that 50,000 that your present business strategy is targeting would be your SAM (serviceable available market). It has to be clearly outlined in your business plan. For instance, your company strategy catered to individuals between the ages of 35 and 55 who had young children and discretionary money. You could then find out that only 20,000 of them are now eligible, implying that your SAM is 40% of your TAM.
The part of your SAM that your company model can presently realistically serve is serviceable obtainable market i.e., your SOM. For example, if you only have three workers (you and two others) and can only serve individuals who reside within a two-mile radius of downtown, how much of your SAM (20,000 people) can you realistically think of reaching in the first two to three years?
Assume your business can offer concierge services to 100 individuals per month or 1,200 people per year. What does this imply? It implies that your SOM is about 6% of your SAM.
Still, finding it difficult to grasp? How about reaching out to business plan consultants whose mind always run on these lines?
If you’re looking for financing, smart investors will look for these things in your business plan and expect you to be able to back your claims up with statistics. Again, consultants of business planning are always there to help you out with these. Doing some market research before you start drafting your business plan is critical—and even recommended. It confirms the market viability of your product.
We are hoping, this has helped you clarify these terms. If you are still confused, reaching out to consultants of business planning will surely help.