Significance of TAM, SAM, and SOM

If you are wondering what these acronyms- TAM, SAM, and SOM- mean, you are not the only one. Many entrepreneurs and professionals do not know about these terms. But it does not signify they’re unimportant. TAM, SAM, and SOM are essential components in the marketing section of a business plan.

Understanding TAM, SAM, and SOM

TAM is an acronym for ‘Total Available Market.’ It includes all the potential customers who can buy your product or service, despite the market competitiveness. On the other hand, SAM is a ‘Serviceable Available Market.’ It is a subset of TAM which describes the chunk of the market that can be acquired. Lastly, SOM stands for Service Obtainable Market, which is a subset of SAM. It is the target market that will get to use your product. In other words, it reflects a segment you will try to sell to initially.

Identifying TAM, SAM, and SOM

TAM, SAM, and SOM can be recognized using market research. The research levels may vary as per the product itself and the potential of the market. When you gather information through market analysis, you can easily get an idea of the percentages coinciding with each area.

SOM is a critical part of market research. It is because if you build your marketing plan around TAM, it might waste money. It helps you focus on reach because you know exactly who and how many will buy your product.

Exemplifying TAM, SAM, and SOM

Let’s assume that you run a restaurant in your city that offers fast food. 

The TAM (total available market) would be everyone who may visit your restaurant. If you find through market research that the possible aggregate demand for your business in your city is 25% out of 10, 00,000 residents, 250,000 will be your total available market. 

The SAM (serviceable available market) would be the fragment of that 250,000 whom your current business model intends to target. It should be outlined in your business plan. For instance, your business model focused on serving people from the age of 15 to 30. Let us assume that you discover that 30% or 75000 people of your TAM lie in the above-defined age category.

The SOM (serviceable obtainable market) is the portion of your SAM that you will initially try to sell to. It is the part of the market which your business model can currently realistically serve. For example, you may only have 50 employees who can only serve 15,000 people per day. So, your SOM will be 20% of SAM and 6% of TAM. 

Conclusion

TAM, SAM, and SOM make up a crucial part of your research. They are something that savvy investors would ask you about. So, in case you are seeking funding for your business venture, conduct a comprehensive market analysis. To learn about market analysis, read up on our article Mastering a Market Analysis.

We, at Oak Business Consultant, are specialized in providing consultation on these matters. We have helped a number of companies in building a robust financial model and business plan along with Pitch Deck. Therefore, you can visit our website Oak Business Consultant to consult with us for free.