TAM, SAM, and SOM—What’s Dat About?
eleva8or sees several business plans. When we get involved with a start-up business we help the entrepreneurs structure their story line for potential investors. One critical area where we notice information missing is the breakdown of the startups TAM, SAM, and SOM in their pitch book or marketing plan.
Wondering what these acronyms mean? You’re not alone—many startup entrepreneurs are not familiar with these terms – especially in emerging markets where eleva8or is busy speaking with entrepreneurs.
Here’s a quick explanation of what they mean, followed by an example:
- TAM= Your Total Available or Addressable Market (everyone you wish to reach with your product)
- SAM= Your Segmented Addressable Market or Served Available Market (the portion of TAM you will target)
- SOM= Your Share of the Market (the subset of your SAM that you will realistically reach – particularly in the first few years of your business)
Identifying your TAM, SAM, and SOM requires deep research into your market (levels of research vary depending on your product and market potential), but once you gather the research you’ll have a better of idea of the percentages that coincide with each area.
An example of TAM, SAM, and SOM
You’re starting a concierge service in the city of Riyadh that focuses on doing tasks/running errands for busy people, and people who need additional assistance (elderly, handicapped, and so on).
Your TAM would be all busy people, elderly and handicapped people in Riyadh. If for example Riyadh has 3,000,000 people, you may find (through market research) that total possible demand for your business in your city is 15 percent (or 450,000 people). Note: If you have a competitor in your market, your TAM would be smaller since you will be sharing this market with another company.
Your SAM would be the portion of that 450,000 whom your current business model is targeting (this will be outlined in your business plan). For example, your business model is being set-up to service 45,000 people/year. This means your SAM would be 10% of your TAM (or 1.5% of your total city’s population).
Your SOM would be the portion of your SAM that your business model can currently realistically serve. For example, you may only have 10 employees (yourself and nine others), so realistically what percentage of SAM can you reach in the first two-to-three years? Let’s assume your company can effectively provide concierge services to 1000 people/month or 12,000 people/year. This means your SOM is about 27% percent of your SAM (or around 5 percent of your TAM, or a little under 0.4% of Riyadh’s population).
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 market research and breaking down your TAM, SAM and SOM is important—and even advisable before you begin writing your pitch book. It gives you the validation of your market potential.
 Market research by eleva8or team and interactions with entrepreneurs in the MENA/GCC region and other Asian emerging markets