Market sizing (2)

Introduction

This tutorial will guide you through the process of market sizing, focusing on three key concepts: Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM). Understanding these concepts is crucial for startups and businesses looking to assess their market potential, make strategic decisions, and attract investors.

Step 1: Understanding Total Addressable Market (TAM)

TAM represents the total revenue opportunity available if a product or service were to achieve 100% market share. To calculate TAM:

• Identify the market: Determine the industry and geographical area your product targets.
• Use data sources: Leverage market research reports, industry publications, and government statistics to find relevant data.
• Calculate: Use the formula:
  • TAM = (Number of potential customers) x (Annual revenue per customer)

Practical Tip

Utilize online databases like Statista or IBISWorld for accurate and up-to-date market data.

Step 2: Defining Serviceable Available Market (SAM)

SAM is the segment of the TAM that your business can target with its products or services. To define SAM:

• Narrow your focus: Identify the specific segment of the market that aligns with your business model.
• Consider limitations: Assess factors such as geographic reach, product specifications, and regulatory constraints.
• Calculate SAM: Use the formula:
  • SAM = (Number of customers in target segment) x (Annual revenue per customer)

Common Pitfall to Avoid

Don't confuse TAM with SAM. TAM is broader and represents the entire market, whereas SAM is specifically the portion of the market you can realistically serve.

Step 3: Estimating Serviceable Obtainable Market (SOM)

SOM is the portion of SAM that you can capture within a certain time frame. To estimate SOM:

• Market share estimation: Research your competitors and their market shares to gauge potential penetration.
• Analyze your capabilities: Consider your marketing strategy and sales channels to determine realistic market capture.
• Calculate SOM: Use the formula:
  • SOM = (SAM) x (Estimated market share percentage)

Real-World Application

For startups, understanding SOM is essential for creating achievable sales forecasts and planning resource allocation.

Conclusion

In summary, understanding TAM, SAM, and SOM is vital for market sizing and strategic planning. By following these steps, you can better assess your market potential and make informed business decisions. To further your analysis, consider incorporating competitive analysis and customer feedback into your market sizing efforts. This comprehensive approach will enhance your understanding of the market landscape and support your growth strategies.