In this guide, we’ll be looking at what is TAM SAM SOM, why it is important, how to calculate it, and the relation in between them.
What is TAM?
TAM is an abbreviated form of Total Addressable Market. This basically means the maximum amount of revenue that a business could generate through selling their product or service in a given market.
What is SAM?
SAM is an abbreviation of Serviceable Available Market. It is very important to calculate the SAM, because if the business is not a Monopoly, then it becomes difficult to capture the market for the respective company’s product and service. This measuring will help the company understand how the companies will be benefitted if they buy, the products and services from the company.
What is SOM?
SOM is the abbreviated form of Serviceable Obtainable Market. This helps to understand who are the actual customer and also what percentage of serviceable addressable market the organization can capture. This can also forecast the revenue that the company can generate.
Importance Of Calculating TAM SAM SOM:
Calculating TAM would benefit the organization by:
- How much effort is required to have an operation over the market.
- Potential growth of the market
- Concept of the business.
Calculating SAM is important because it gives a realistic image of the market which possibly can be selected after understanding the unchangeable factors.
Calculation of SOM helps the business organization by:
- Aids the business organization to set medium and short-term objectives and goals.
- Helps to make more utilisation of the limited resources, and also effectively.
- Aids in making the investors to realise, understand, and recognise the potential market.
How To Calculate TAM SAM SOM:
TAM can be calculated through analysis of an industry, named Bottom-up analysis. This type of analysis includes counting the total number of consumers in the market. That particular number is then multiplied by the average annual revenue of individual customers in the market.
The first step to calculate SAM is calculating TAM. The results of TAM are then melded with various conditions and equations to give the result of SAM. All the potential customers are summed up and then it has to be multiplied by the average annual revenue of the customers in the targeted market. The potential customer should fit in the respective business organization.
For calculating SOM, of an organization, the following factors should be considered:
- Share in the market of the rival company
- Performance of offering’s pre-release
- The value of the offerings.
A comparison is made out of which the result is again compared with the SAM, this gives the value of SOM.
Here, the division of the previous year’s revenue by the SAM of the previous year is to be done. The result got is simply the percentage of the previous years’ market share. This result is to be then multiplied by serviceable addressable market from this year of the respective industry.
Relation Of TAM SAM SOM:
- TAM is the complete market demand for any goods and services.
- SAM is a part of TAM served by the company’s product or service.
- SOM is the percentage of SAM that has been actually reached by the company.
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