TAM, SAM, and SOM are crucial terms for a business, especially for start-ups and a clear understanding of these terms is crucial to understanding the market opportunities for the business’s products and services. The founders need to have a clear understanding of the TAM, SAM, and SOM to efficiently scale the business and to be able to attract capital from investors.
Total Addressable Market (TAM)
TAM is the total revenue opportunity that a product or service can generate if it is purchased by all people in a particular market, i.e. it is the total market demand for a product or service.
Serviceable Available Market (SAM)
SAM is the market that is targeted to be served by a company’s products or services. It provides an objective measure to determine whether a target audience exists for a product or service within a specific geographical area and whether the target market size is sufficient for profitability.
Serviceable Obtainable Market (SOM)
The Serviceable market is a reasonable percentage of the SAM that can be realistically targeted by the business in the short term.
Earlyvangelists (EVG)
Earlyvangelists are early adopters of the products and services of a startup. These customers are willing to try something new, and they are usually willing to pay for it. They can envision the potential of the product or service and have the budget to purchase it.
Example-
For a restaurant chain operational in India, the TAM is the people willing to eat outside their homes in India. Their SAM would be the maximum potential customers serviceable in their specific area of operations. However, their SOM would be a percentage of the SAM that can be realistically converted into sales by the company. Earlyvangelists for the business will be the initial group of customers who are willing to buy the food from the restaurant.
A business can tailor their goods and services to meet the demand of its prospective and current customers by effectively identifying the market demand for its products and services.
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