What are the TAM, SAM and SOM?

Whether you're working on a new business plan or you're flushing out a grant or investor application, knowing your Total Addressable Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM) can help validate your business idea. In this post we'll explore the TAM, SAM, and SOM with help from ChatGPT to highlight how to research and shape your individual business model.

The example business for this example is an eco-friendly reusable water bottle company. The business is 'new' (startup) based in the EU and selling online directly to the consumer (DTC, or B2C business to consumer).

Photo by Bluewater Sweden on Unsplash

Total Addressable Market (TAM):

The Total Addressable Market represents the total demand in your market. You can create your TAM figure by researching the industry broadly to get an idea of facts and figures OR you could estimate how much a potential customer or client spends and multiple that by the total number of potential customers, worldwide.

The TAM is meant to be an absolutely huge figure. Don't be overwhelmed -- or too excited -- about the numbers at this stage in the process.

According to the example, the TAM for global reusable water bottles in 2024 was valued at €10 billion. Adjusting for your products 'niche' (eco-friendly) studies indicate that 40% of reusable bottles sold are 'eco-friendly'. Your TAM becomes €4 billion (10 billion x 40%).

Serviceable Available Market (SAM)

The Serviceable Available Market represents the part of your TAM that you could hypothetically service. Your SAM figure comes from narrowing down your TAM to customers that your product or service can actually serve based on geographic location and demographic use of your product/service, or more broadly the product/service fit.

The SAM is the portion of the TAM that if all things were going according to plan you could easily satisfy.

Back to our example (with the help of ChatGPT), the SAM is the regional market you could hypothetically serve and your target customer segment. The EU accounts for 20% of the global reusable water bottle market. Therefore your €4 billion TAM x 20% = €800 million in the EU.

Then, figuring in your target customer values, age, price point and lifestyle:

• Environmentally conscious

• Aged 20-45

• Mid-High Income

You can look to the data and determine/estimate that 25% of EU consumers fit this persona therefore your SAM becomes €800 million x 25% = €200 million.

Serviceable Obtainable Market (SOM)

The Serviceable Obtainable Market represents the portion of the SAM that you can realistically service. Optimistically, a start up might 'expect' to capture 1-5% of its SAM -- therefore the SOM -- in its starting days (years). To find your SOM for your business where possible look at resources such as marketing budget within the business and your competitors in the industry.

The SOM is portion of the SAM that your business could feasibly satisfy with product or service. This is the step to be realistic! Set reasonable expectations and let the numbers guide decisions.

Taking into consideration your business location, model (Direct to Consumer, DTC) and possible marketing budget (+/- €20,000) you can look to 'industry benchmarks' and estimate a .5 -3% market 'penetration' in year 1. That looks like approximately 1% of your SAM in your first year so €200 million x 1% = €2 million. But what about product costing? If your bottle retails for €25 a unit your SAM could be 80,000 units a year at €2 million/ €25 = 80,000 units a year.

When you are creating your own TAM, SAM and SOM for your business idea remember to look for diverse, verified data to help shape your figures and inferences. While ChatGPT is helpful in organising the data in clear, easy to understand structures it should not be your end-all source for finiancial decisions.

Summary:

By determining your business ideas Total Addressable Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM) you can make more specific decisions for the health of your business based on data rather than instinct.

Get in Touch.

Have a question about how to apply the TAM/SAM/SOM model to your business? Write to us at Liz@litirmarketing.com today.