TAM, SAM, SOM. Is this the new SOH, CAH, TOA?

In a world of endless acronyms do you really need this one?

Yes, is the short answer. Our team got together to explain what TAM, SAM, SOM is and why your business should use it.

The meaning behind the model

TAM, SAM, SOM is a tool to help document your ‘go-to market’ (GTM)strategy. It can be used to convince potential investors of their return on investment by giving a snapshot of your potential business. This is particularly important when starting up a business or adding a new product or service to your existing company.

TAM, SAM, SOM should be considered an essential model for any business about to enter into a growth phase.

Without this model there are many pitfalls you could fall victim to, such as setting unrealistic revenue targets or underestimating the market size of your new venture.

In short, before you can even think about the sales funnel you have to use the TAM, SAM, SOM model.

TAM, or the total addressable market, is the entire possible market for your company’s product or service. Obtaining this figure would only be possible if everyone in the world who needed your product or service purchased it from your company. This calculation is useful when estimating the market growth for a particular venture.

For example: If your business venture was an online Software as a Service (SaaS) platform for shared file saving, the total addressable market would be every person around the world who has files that they would like to save.

SAM, or the serviceable available market, would be based on the proportion of the available market that best fits your product or service. These would be groups that your business would eventually be targeting as part of their medium-term strategy.

So, to return to the SaaS platform example, the serviceable available market would be those who need these files to be accessible to others, and those who have a device that is compatible with your platform.

Finally, SOM, the sustainable obtainable market, is the portion of SAM that your company could realistically achieve when considering competition, limitation of resources and level of market awareness. SOM would be the new company’s starting target.

For your SaaS company, the SOM would be the people that are aware of your brand and do not already have a platform to save and share files on, and those whose language or file types are compatible with the platform you have devised. Of course, another aspect of SOM is to make sure that your company has the resources to cover the demand. It wouldn’t do much good taking on 3000 new customers with 10000s of files each if your platform cannot support that level of use.

Sustain and obtain? Of course!

The metrics also project growth and medium-to-long term business goals. Having a well-designed SAM calculation can aid in your business strategy to capture more of the market available to you. It helps to align marketing campaigns and to structure what your business requires to effectively expand beyond the SOM. Whether that be more employees or coverage over a geographical area or language knowledge, you’ll learn once you have achieved your sustainable obtainable market what you need to reach for the SAM.

These calculations also attract investors to fund your business venture as, if you’ve already identified potential market growth and expansion opportunities, they’ll see less risk in investing in your company versus another.

As well as using these in the start-up or pre-seed stage of your brand to gain interest from potential investors, this metric can continue to have use long after your company has started to develop. Established brands use the TAM, SAM, SOM model as part of their market research to measure their ability to enter a new specific market. And as your company grows, the calculations evolve to project new goals and new market growth milestones.

At Copestone we have over a decade of experience working with clients ranging from start-ups to multinationals including strategizing revenue generation and marketing support to build and scale brands. Contact us for a confidential conversation to discover how our experts can assist in your growth plans.

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