The market you are marketing to can be visualized and segmented in different ways for planning purposes. The TAM, SAM, SOM model is widely used and rightfully so – it shows how much opportunity there is at different stages of business growth. Framing each:
Total Addressable Market (TAM)
- The total market demand for your product. Knowing this helps you estimate your potential for growth (likely related to the company’s V𝘪𝘴𝘪𝘰𝘯)
- Formula: (# of customers in the market) x (annual value per customer ACV)
- Example: for a market of 5,000 customers at $500 ACV, your TAM would be $2.5M.
- Note: market research is likely needed to determine the # of customers in a market – this will be framed in tomorrow’s post!)
Serviceable Available Market (SAM)
- The portion of the market you can actually acquire based on your business model. Knowing your SAM helps you estimate targets for revenue and audience
- Formula: (% of your TAM that is a good fit for what you’re selling) x (ACV)
- Example: Say only 2,500 customers in your TAM of 5,000 live in the geographical area you are able to serve. This results in a SAM of $1.25M
Serviceable Obtainable Market
- The demand for your specific product/service, taking into account the competitive landscape. SOM represents your opportunity in the market, more realistically. Knowing your SOM helps you estimate short-term growth.
- Formula: (last year’s market share) x (this year’s SAM) where last year’s market share equals last year’s revenue/last year’s SAM)
- Example: if last year’s SAM was $1.25M and revenue was $1M then last year’s market share was 0.8 or 80%. Plugging this into the formula and if this year’s SAM is $2M, then your SOM is (0.8) x ($2M) = $1.6M
What’s the bigger picture here? Well, marketing is an art and a science. Part of the art is placing bets on how you will attract an audience to your product. It’s likely that you’d want to place a majority of your betting money on your SOM, but also invest in your SAM and TAM.
Want to learn more about Marketing? See my Marketing Framed publication for these key topics:
marketing, market, TAM-SAM-SOM, market research, go-to-market, product-market fit, positioning, marketing funnel, marketing flywheel, marketing mix, marketing goals, marketing strategy, marketing execution, marketing budget, brand marketing, content marketing, copywriting, storytelling, marketing projects & initiatives, marketing project management, marketing agency, marketing technology, marketing automation, marketing & AI, marketing analytics, marketing metrics
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