To get to this realistic value, the following factors are taken into consideration – SOM represents the realistic value of what can be achieved. Helps the founders make most of their limited resources initially.Helps investors and founders understand the potential of the market, and.Helps business set realistic short-term and medium-term objectives and goals,.SOM is of vital importance to both the founders and the investors as it – Limitations relating to finance and other resources.It considers the competitive, financial, niche, and resources-based restrictions while predicting realistic reach during the initial years of operation. In simple terms, SOM, also called Share of Market, is the realistic fraction of the actual customer market that the business can acquire during the first few years of operation. SOM = % of SAM the business can realistically achieve in short-to-medium term. SOM or Serviceable Obtainable Market is the portion of the serviceable addressable market that can be realistically achieved within the short term. However, if the business is focusing just on California (having just 500,000 football players), the SAM would come out to be just 0.05% of TAM, that is $25 million. Considering that there are 20 million football players in the USA, and the cost of the offering to be $50, the TAM comes out to be $900 million. Suppose a business plans to launch an offering focused on football players in the USA. Once TAM is calculated, it is filtered down by adding conditions and equations.
Serviceable available market (also called serviceable addressable market) is a realistic picture of the market that can actually be tapped after considering the limiting factors that cannot be changed.įor example, if a business manufactures a mobile application that helps parents find their kids, the SAM would not be the total number of smartphone users, it’ll be parents of 5-12-year-old kids, who use Android smartphones running on the latest version (Here we assumed that the application is specific to just Android smartphones). It takes into account all the factors limiting the reach to the total market, like –įor Uber, the serviceable available market in the start was limited to the taxi market in the USA and users who used a smartphone. SAM = % of TAM that is within the business’s operable territory. It is the total sales volume of a particular offering that can be sold by all the vendors within the specific operable territory. SAM or Serviceable Available Market is the portion of the total available market that the business can actually acquire. This price is then multiplied with the size of the market of the closest possible niche (cars in case of flying cars). This approach assesses how much a customer would be willing to pay for an offering or the improvement of a product. However, in cases of startups that disrupt (like flying cars) and develop their own market, the value theory approach kicks in.
External Research: It involves getting the information from professional data that has already been collected.…the actual process of getting these numbers is difficult, tedious, and/or expensive. While the equation to calculate TAM seem simple…Īverage Revenue * Number Of Customers For The Entire Segment Of The Targeted Market Effort and funding that might be required to operate in the market.The total addressable market (also called total available market) helps a business identify how big the opportunity is and how much revenue can be made with the offering if 100% of the market share were achieved.