The TAM SAM SOM Model helps you map out your market size and market share…
You have a product or service but don’t know exactly how to formulate a good go-to-market strategy.
There are dozens of different marketing models out there, but there’s not one that identifies what your target markets will be.
I’m going to explain to you:
- What TAM SAM SOM is
- How to fill in the TAM SAM SOM Canvas
- And how to avoid falling into common mistakes
Let’s get started…
What is the TAM SAM SOM Model?
TAM, SAM and SOM are acronyms; they describe different types of markets:
It allows you to break down the entire market you are going to target into “manageable” chunks.
The TAM SAM SOM model is best known by people who want to convince investors that the market they want to conquer is big enough to deliver a high Return on Investment (ROI).
Tip: if you don’t feel like reading this blog you can also watch this video:
But then what are TAM, SAM and SOM…
1. Total Addressable Market (TAM)
How big is the largest market?
The TAM is the total market you could serve with your product or service.
It represents the maximum revenue you could make in the long run if you captured 100% of the market.
A great example of a slide in the Airbnb pitch deck:
2. Serviceable Available Market (SAM)
How big is the market you could reach now
The SAM is a step lower than the TAM, because in it you are still limited by, for example, the location of your company or the specialization in which your company is engaged.
It is the market that you could actually reach and where you are going to focus on in the medium term.
3. Serviceable Obtainable Market (SOM)
What is the market you can reach with your current resources?
The SOM can be used to attract the largest possible market in the short term with your current resources.
By resources, think of:
- Brand awareness
So basically everything you have now, what’s available or what you have to deal with.
What are your most potential customers?
Officially, this part doesn’t belong in there, but we’ll just call it the TAM SAM SOM + Model…
You can recognize earlyvangelists by:
They are the customers you are going to serve in the very short term to validate your assumptions and business model.
Why use TAM SAM SOM?
The TAM SAM SOM Model has two major advantages:
- You focus on evolving your product or service
- It gives investors a good insight into the potential Return on Investment (ROI)
In addition, I think it is important to find the right earlyvangelists…
This ensures that in the beginning you only focus on the most potential customers so you get a lot of feedback and don’t waste time on customers who are not yet satisfied with an incomplete product.
The use of TAM SAM SOM (+) resembles a beachhead strategy…
The beachhead strategy originally comes from the military. The principle involves first conquering and small area after which you can start conquering a larger area.
The small area that you conquer first is called the beachhead:
In your business, you can also apply this…
You will focus your resources on a niche, a small segment of the market. Once you’ve conquered the beachhead, you can expand into a larger piece of the market.
A beachhead acquisition occurs when a company acquires another company to establish itself in a new geographical location or a new market.
Ease of Growth
To effectively have a beachhead strategy, it is important to look at which target groups it is easy to grow into:
You can check whether it is easy to grow in a particular target market by considering the following specifications:
- How easy is it to sell to them? (decision maker, size of organization, formality)
- Where is the competition? See where the competition is and where they are not. Is there room for your company where they are not (yet)?
- Can you make technical integrations with solutions they are already using?
- Are there regulations that make it easy for you to grow into a market?
‘Crossing the Chasm’
There is an additional challenge involved in bringing a product to market, namely ‘The Chasm’.
Your first customers (innovators & early adopters) are quite easy to convince…
They settle for a product that is not yet finished and therefore not perfect:
The early majority, late majority, and the laggards on the other hand expect your product or service to be ready to use or deploy.
The gap that lies between the early adopters and the early majority is also known as ‘The Chasm’, there lies a crucial point where your company will make or break it.
You can cross ‘The Chasm’ by:
- Getting lots of feedback quickly from the innovators and early adopters.
- Evolving your product or service in response to feedback, removing as many barriers as possible.
- Assessing which features are indispensable or unnecessary and look for bottlenecks in terms of scalability and make improvements.
How to fill in the TAM SAM SOM Canvas?
Download the TAM SAM SOM Canvas so we can fill it out together:
Then we will now look at how to calculate the values of your TAM, SAM & SOM…
How to calculate the markets?
There are 4 different ways you can calculate the values of your market:
- External research: from a statistics firm or a commercial company.
- Top-down approach: go from a mountain of data slowly adding requirements.
- Bottom-up approach: from a detailed amount of data slowly add more data.
- Value Theory approach: find out how much a customer would be willing to pay for your solution (blue ocean).
1. External research
An easy way is to just look at data from a statistics firm or outsource the research…
This can be expensive, but it is often very accurate numbers. Companies such as:
Can offer (for free) very good data. The only downside to this is that you often don’t know how these figures are constructed.
2. Top-down approach
This approach indicates that you are starting from a big mountain of data where you are going to get more and more specific as you start adding more requirements, aspects such as:
A visualization of this:
An example from Alex Graham:
The recommended amount of water per day for people is 1.9 liters, there are 7.5 billion people in the world and with the average of €0.32 per liter and a 20% margin, the TAM of bottled water would be the following:
7.5 billion people * 1.9 liters * €0.32 price per liter * 120% margin * 365 days = €2.01 trillion TAM
3. Bottom-up approach
In the bottom-up approach, you start with a proven data point and build on it with new data:
The downside is that many assumptions can create a distorted picture…
Especially at the international level, because there are many differences between countries.
4. Value Theory approach
The previous methods are mainly there if you are going into an existing market with an existing product or service…
The Value Theory approach is focused on products or services for which there is not yet a market.
With this approach, you’re going to look at how much a customer would be willing to pay for your solution. Spotify is a great example of this:
In the time before Spotify, everyone bought CDs, each time they had to pay again.
Spotify released a subscription for €9.99 per month which was very interesting at the time. In retrospect, the market of Spotify would not only include the people who bought CDs, but everyone who listens to music.
Now it’s your turn…
If all goes well, you are now armed with enough knowledge to document your go-to-market strategy…
Now I want to know from you, what do you use to map out your target market(s)?
Let me know in a comment.
P.S. if you would like additional help let me know at [email protected]
Frequently asked questions
TAM, SAM and SOM are acronyms that stand for Total Addressable Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM).
TAM SAM SOM is a way to document your go-to-market strategy and convince investors of the Return on Investment (ROI) they can get if you capture the largest market possible.
You can calculate the TAM SAM SOM using the top-down approach, the bottom-up approach, the value theory approach or external research.
TAM stands for Total Addressable Market which describes the revenue your company has when you have captured 100% of your total market with your product or service.
SAM stands for Serviceable Available Market which describes the market you could reach at this moment, including the limitations of your location and business model.
SOM stands for Serviceable Obtainable Market and describes the market you could conquer with the resources you currently have available.
Airbnb’s SOM is the number of trips booked with Airbnb which came to 10.6 million, Airbnb’s SAM is the number of budget & online trips which came to 532 million and Airbnb’s TAM is the number of trips booked worldwide which came to over 1.9 billion.
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