The acronyms TAM SAM SOM represent market subsets.
These market size metrics help present a product’s or service’s feasibility to win investors’ trust. Every business idea must have a sizeable market available to be deemed worthwhile.
So, for a business idea to attract funding, there must be an estimate of the market size.
Here, startups and established businesses all need market sizing using established models like the TAM SAM SON. For a more detailed understanding, let’s have a look at each of these market sizing models.
Market Sizing Models | TAM SAM SON
In business, all kinds of abbreviations are used to denote and convey critical information.
Often, such abbreviations or acronyms wouldn’t make sense to the uninitiated. If you’re reading this, you’re likely seeking detailed explanations of these terms.
In this article, we’ve provided clear explanations about the meaning of each acronym. Also included is information on the similarities as well as differences.
These provide the reader with a better understanding of the information conveyed. Without further ado, let’s proceed to the main discussion.
i. Meaning of TAM SAM SON
So far, we’ve only made mention of these acronyms without explaining what they’re about.
TAM refers to the Total Available Market or Total Addressable Market, a measure of the total revenue opportunity available to a product or service assuming 100% market share was attained.
By assessing TAM, potential investors can estimate a market segment’s size translates to the maximum revenue a particular business idea can generate through selling services or products within a defined market.
TAM has several benefits, including promoting product competitiveness and defining the total market size for a service or product.
TAM also helps assess the maximum revenue a business will ever generate when it reaches its full potential.
It’s necessary to state that most businesses hardly ever capture 100% of their available market. TAM calculation uses two strategies: the top-down and the bottom-up approaches.
The latter tends to be more reliable due to its primary market research model.
The acronym SAM refers to Serviceable Available Market or Serviceable Addressable Market. This mainly focuses on the segment of the TAM targeted by your products and services within your geographical territory or reach.
In other words, SAM can be further explained as the total sales volume of a product or service sold by all vendors on the market within a specific territory serviced by your business.
The willingness of customers to pay for a product or service is what SAM estimates.
Through SAM, the medium-term potential of a business idea is revealed. SAM most impacts startups because it shows the audience for a product or service.
Based on this reality, the precise definition of SAM helps fine-tune your sales and marketing efforts, leading to improved sales.
For SAM to be effective, it needs to identify and exclude irrelevant market segments. Unrelated market segments translate to markets the business cannot serve due to varying constraints.
Various constraints, which may be financially related to culture, geography, willingness to pay, market cannibalization, or regulations, may be involved.
SOM refers to Service Obtainable Market and mainly involves identifying how large the realistic market portion within the SAM is. This portion is one your business can adequately handle within 4 to 5 years.
Also called the Share of Market, SOM helps identify a service’s buyers. With SOM, an assessment of the potential sales of a business is made.
SOM is the short-term goal that offers a realistic objective on your capacity to achieve set objectives. Investors look out for this.
All Three must be Included in your Business Plan.
To make your business idea convincing enough to investors, you’ll need to include these key market size metrics.
They help guarantee low-risk investments while also helping to expose investment opportunities offering significant growth potential.
ii. TAM SAM SON Examples
Under this example, the global market will be the total addressable market (TAM) for someone in a fast-food restaurant business.
In the absence of competition, and while being present across all countries and regions of the world, TAM would be generated as revenue.
A SAM example can be seen when you need to establish a pizza shop in two different locations or cities.
An assessment of fast food restaurants having similar demographics will be necessary. Here, key aspects such as food habits and demand for fast food by the population are considered.
This is your Serviceable Available Market and projects the demand for your type of products within your reach.
Still, on fast-food restaurants, it considers that you’re not the only fast-food restaurant around your area.
Based on this reality, you’ll need to adopt a more realistic approach that involves capturing a fraction of SAM. Your SOM will consist of food lovers around the area and those a bit farther away.
Here, it’s evident that these market size metrics offer a much deeper assessment of the feasibility of a service or product to attract the attention of investors.
Including the TAM SAM SOM concepts in your pitch are highly important.
Now that you know what TAM SAM SON is all about, you can further research them to know precisely how best to apply the same to your plan.