TAM, SAM, and SOM – You’ve most likely come across these acronyms while doing your research and given your head a good scratch…
At Fenti, we usually prefer to skip the jargon. But when it comes to these nine letters, we fully encourage doing some homework, so that they can help take your business and marketing strategies to new heights!
From understanding ‘what is TAM’ to learning ‘how to calculate TAM, SAM, and SOM’, we’re covering everything you need to know to get started with these handy metrics.
TAM, SAM, SOM Meaning
Let’s simplify these three essential terms:
TAM (Total Addressable Market)
This is the big one. TAM represents the total revenue opportunity available if your product or service could serve 100% of the market. Think of it as the absolute maximum potential. Knowing your TAM helps in evaluating market potential and attracting investors who want to see the biggest possible opportunity.
SAM (Serviceable Addressable Market)
Now we’re getting more realistic. SAM refers to the portion of the TAM you can actually target based on your business’s offerings, geography, and operational capacity. It’s the middle ground between fantasy and reality. A well-defined SAM allows businesses to refine marketing strategies and optimise resource allocation.
SOM (Serviceable Obtainable Market)
SOM is the slice of the SAM that your business can realistically capture, considering competition, budget, and resources—basically your target market and achievable goal. Understanding SOM helps businesses set realistic sales targets and develop more effective go-to-market strategies.
How to Calculate TAM, SAM, and SOM
Calculations require a blend of market research and maths—here’s a basic approach:
Total Addressable Market (TAM)
Identify the total size of the market for your product or service.
- For example, if you’re selling coffee machines and the global coffee machine market is worth £5 billion, that’s your TAM.
Serviceable Addressable Market (SAM)
Now, narrow your TAM down to your specific audience within the market.
- If your coffee machines are premium and target high-end consumers in the UK, your SAM might be £500 million out of the £5 billion.
Serviceable Obtainable Market (SOM)
Decide how much of the SAM you can realistically capture.
- Maybe you’re a new company with limited reach, so only 10% of the SAM is practical—therefore, your SOM would be £50 million.
To make these calculations more precise, businesses can rely on industry reports, customer data, and competitor analysis to refine their estimates and improve accuracy.
Why Are TAM, SAM, & SOM Important in Marketing?
TAM, SAM, and SOM are more than just numbers; they’re essential to shaping your marketing strategy!
Knowing your total addressable market, serviceable addressable market, and serviceable obtainable market ensures you’re focusing your marketing efforts on the people who matter most. TAM gives you the big picture, SAM helps you define your market niche, and SOM shows you where to focus your resources for the best results.
What’s more, once you know your SOM, you can allocate your marketing budget more efficiently. Instead of wasting money on broad, ineffective campaigns, you’ll be able to concentrate on areas that give you the highest return.
In short, by calculating your TAM, SAM, and SOM, you avoid the costly mistake of chasing unattainable goals. It keeps your marketing efforts focused on what’s possible, saving you both time and resources.
TAM, SAM, SOM in Action
Each of these metrics plays a crucial role in business strategy and decision-making. Let’s break down their real-world applications:
Using TAM to Gauge Market Potential
Understanding your TAM allows you to see the total demand for your product or service. This is particularly useful when pitching to investors, as it provides a clear picture of potential revenue. Companies looking to scale quickly can use TAM data to assess global expansion opportunities and evaluate new market entry strategies.
Refining Strategy with SAM
SAM helps you define a realistic, serviceable market. It ensures that your business focuses on the most relevant customer base rather than trying to be everything to everyone. Companies can further refine their SAM by considering factors such as industry trends, customer demographics, and technological advancements.
Targeting Success with SOM
By calculating SOM, you get a realistic view of your achievable market share. This helps refine sales goals, operational strategies, and marketing campaigns. Businesses can improve their SOM by enhancing brand awareness, developing competitive pricing strategies, and optimising distribution channels.
Where Fenti Comes In
Now that you know your TAMs from your SAMs, it’s time to expand your business, pitch with confidence, track benchmarks, and so much more. At Fenti Marketing, we specialise in helping clients refine their digital marketing strategies to hit the right audience and see an impressive return on investment.
Explore new opportunities by letting our expert team do the hard work for you while you enjoy the results—get in touch today to conquer your industry.
