Scalepath helps B2B companies grow by understanding their market size, growth dynamics, and best opportunities to capture new revenue.
TAM, SAM, SOM, and market share are ways to break down and understand a company’s revenue opportunity for a specific product or service.
These market sizes, generally shown as smaller and more targeted circles in a bulls-eye, make up your market sizing analysis and can serve a key purpose in your company’s strategic toolkit.
TAM, SAM, and SOM are often used interchangeably, confusing audiences everywhere. It's best to always be clear about what market opportunity you are speaking about. For example, TAM should refer to total market, even the market you can't reach today, but you can narrow it down to say "our serviceable TAM," "our serviceable market," or "our TAM in the United States."
TAM, SAM, and SOM are nested within each other, as shown below:
Total Addressable Market or TAM = What is the total possible market size globally?
Before entering a new market or investing in a new business, companies and investors want to know how big the total market for this product or service is, and how fast is the market growing. In other words, what does a home-run look like at scale?
Technically speaking, your Total Addressable Market (TAM), sometimes called Total Available Market, is often the broadest picture of your market opportunity. Your TAM is meant to portray the total possible demand for your product or service without any limitations to your geographies, competition, customer segments, distribution or anything that may prevent you from capturing the entire market. However, "TAM" is often shorthand for addressable market, which may be more in line with the serviceable market (below).
TAM models help companies decide whether or not to create new businesses, launch new products, enter a new geographic region, or target an adjacent vertical. It helps investors make investment and acquisition decisions, primarily by understanding if the market is large and growing fast enough to justify investment.
These are high-stakes decisions, so a reliable and credible market sizing study is critical to help businesses understand the size and drivers of a market. It takes significant investment to scale a business globally; TAM helps answer the question, "Is the juice worth the squeeze?"
Serviceable Addressable Market or SAM = What portion of the overall market can you actually serve?
Your SAM, also called Serviceable Available Market, narrows in on your market to show which portion of your TAM you can actually compete for given factors such as:
SAM is a more practical estimate of your reach. Note that many companies will automatically rule out markets and customers from their TAM right away (for example, by only focusing on the US or English-speaking markets) and are really creating a SAM model. That's fine, and it can actually often be easier to start here and apply some logic to scale up to a TAM number. There is benefit in staying at a higher level for TAM, especially in a segmented model, to quantify the global opportunity, then drill into ones more relevant to your business at the SAM level.
The test for SAM versus TAM at Scalepath is, "If this customer came to us organically, could we actually sell to them?" If yes, they are in your SAM. If not, but you may be able to sell to them at some point in the future, they are in your TAM but not SAM.
SAM is closer to the true market opportunity for a product; however, it neglects the roles of competition, distribution, and preferences if ideal buyers in your core target market. Therefore, you need to narrow your focus further to your Serviceable Obtainable Market or SOM.
For examples of how SAM is calculated, read How to Calculate TAM.
Serviceable Obtainable Market or SOM = What portion of the market can we capture?
Your SOM should mirror your target market niche and serves as the market share target you could achieve in the next few years. This is your core target market of ideal customers: the companies that you know need your product and show high likelihood to buy and willingness to pay.
Your SOM factors in things like:
The test we use for SOM at Scalepath is, "Is this customer in our core target market, and do we have reference-able customers like them already?" In other words, if you were building ad campaigns in LinkedIn or Facebook, who is that target audience? If you aren't targeting them directly, it's likely a customer is in your SAM but not your SOM.
Market share = What is our current revenue compared to the broader market?
Market share can be calculated a few ways. It is often expressed as a percentage of the total market spend you have, but can also be the share of the SAM or SOM you’ve captured today. Comparing your existing revenue to the serviceable market can help you track performance versus the market; more importantly, it can indicate when you are reaching market saturation and need to look at expanding to new market opportunities.
Calculating TAM can be done by yourself with some effort, with a market sizing consultant, or with Scalepath's market sizing software. For more examples of how to calculate your TAM, SAM and SOM, see our How to Calculate TAM post.
TAM, SAM, SOM and Market Share serve key roles in understanding your market: TAM, the overall market potential for your product, SAM, your serviceable revenue potential, SOM, your near-term target and market share, your existing piece of the market today.
If you’re ready to build your TAM, SAM and SOM models, download Scalepath's market sizing framework, or explore our TAM, SAM, SOM software.