TAM SAM SOM definition - Lecture notes 1-3 PDF

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TAM SAM SOM definition

TAM, SAM and SOM are acronyms that represents different subsets of a market. TAM or Total Available Market is the total market demand for a product or service. SAM or Serviceable Available Market is the segment of the TAM targeted by your products and services which is within your geographical reach. SOM or Serviceable Obtainable Market is the portion of SAM that you can capture.

Let's take an example. Let's say you are starting a fast food chain. Your TAM would be the worldwide fast food restaurant market. Potentially, if you were present in every country and had no competition you would generate TAM as revenues. Let's be more realistic. You are starting your restaurant chain in two cities where the demand for fast food can be estimated based on: the population, their food habits, and the revenues generated by fast food restaurants in other cities having similar demographics.

That is your Serviceable Available Market: the demand for you type of products within your reach. In other words if you were the only fast food in town you would generate revenues of SAM.

Now you are probably not the only fast food in town... So realistically you can hope to capture only a fraction of your SAM. Most likely you will attract fast food aficionados living or working close to your restaurants and a fraction of the people located further away that are willing to give your chain a try for the sake of fast food diversity. This is your SOM.

What’s an example of TAM, SAM, SOM? You’re starting a concierge service in your city that focuses on doing tasks/running errands for busy people.

Your TAM (total available market) would be all people who may have a need for help doing tasks and running errands in your town. If your town has 150,000 people, you may find (through market research) that the total possible demand for your business in your city is 33 percent (or 50,000 people). You might arrive at this number by excluding people who are under 18 years old and other groups of people who can’t purchase your services.

Your SAM (serviceable available market) would be the portion of that 50,000 whom your current business model is targeting (this will be outlined in your business plan). For example, your business model focused on serving people who are ages 35 to 55, with small children and disposable income. You may then discover that there are 20,000 of these people, which means your SAM is 40 percent of your TAM.

Your SOM (serviceable obtainable market) would be the portion of your SAM that your business model can currently realistically serve. For example, you may only have three employees (yourself and two others) and can only serve people who live within a 2-mile radius of downtown, so realistically what percentage of your SAM (20,000 people) can you reach in the first 2 to 3 years?

Let’s assume your company can effectively provide concierge services to 100 people a month or 1,200 people a year. This means your SOM is about 6 percent of your SAM.

If you’re seeking funding, savvy investors will ask you for these items in your business plan, and they’ll want you to be able to back up your numbers. This is why conducting some market research upfront is important—and even advisable before you begin writing your business plan. It gives you the validation of your market potential.

PAM (potential available market) — represents the global market of these goods and services without any restrictions of geography and other factors. Example: in case of website PAM will be represented by global web-development market....