TAM / SAM / SOM is a model for market sizing and can quickly provide a sense of the opportunity before making deep investments in pursuit of it. The model requires developing three graduated estimations of the market – the total available market (TAM), the part of that market that is serviceable with the solution you’re considering (SAM), and finally the market share you anticipate you can capture (SOM).
“How big is your target market?” is a question often asked by investors. Naturally, investors want to invest in large and rapidly growing markets. Most entrepreneurs hesitate when answering this question. What if they are far off from a VC’s idea of the size of a market? More so, VCs will throw terms like TAM, SAM, and SOM at an entrepreneur in a rapid-fire fashion. There is no need to be intimidated by these acronyms.
What is TAM?
TAM = Total Addressable/Available Market is the total market for your product. This is everyone in the world who could buy your product, regardless of the competition in the market.
What is SAM?
SAM = Serviceable Available Market is the portion of the market that you can acquire. For example, your product may only be available in one language, so your SAM would be the subset of the TAM that speaks the language that your product is developed for.
What is SOM?
SOM = Service Obtainable Market is the subset of your SAM that you can realistically reach. This is effectively your target market that you will initially try to sell to.
Why does TAM/SAM/SOM matter?
The purpose of TAM/SAM/SOM is to validate that the opportunity is big enough to warrant the investment. The first target for your product should be to achieve your Serviceable Obtainable Market (SOM) goal. Once this has been achieved, you can now assess how you might capture more of the Service Available Market (SAM). You may, at this point, be able to cut out some of the competition by acquiring them or beating them on cost. If you’re going after the luxury market you may now have some exclusivity and hype that the market is vying for. Once your goal has been achieved in the Serviceable Available Market (SAM), you can consider how to extend into the broader Total Available Market (TAM).