Your Total Available Market (TAM) is defined as all the people who could buy your product or service or put another way, the total available market demand for your product or service. Pay special attention to the word “could.” This does not mean that they will buy; it only means that they “could” buy from you if they decided to. Within your TAM, there are different groups of people, all part of your TAM, that share common characteristics.
There are several ways to approach the identification of these groups of potential customers. Understanding these various groups can greatly impact the marketing strategy you implement to introduce your product and service to the consumers.
Many investors like to see your understanding and view of two important groups often referred to as Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM). These groups are defined as:
- Serviceable Available Market (SAM) is the segment of the TAM which you intend on approaching first with your product or service. Often the SAM is defined as the segment of the TAM which is in your geographical reach and who you intend on marketing your products and services to.
- Serviceable Obtainable Market (SOM) is the portion of your SAM that you intend on targeting first. The SOM is often referred to as the segment of your market you believe are most likely to purchase what you are offering; the group you will seek to approach first to become “early-adopters” of your product or service.
Most investors want to know you understand the TAM,SAM, and SOM concepts as they relate to your product or service and that you have considered each of these concepts. The TAM helps investors and you consider the upside potential of your idea. The SOM and SAM help in understanding the chances you have in being successful in the market. Understanding your SOM and SAM can help you and your investor assess the odds of achieving success.
For purposes of our analysis we will focus on the Serviceable Obtainable Market (SOM) as this represents your initial target market and therefore is the one that matters most. If you cannot succeed in reaching your SOM and achieve success in this target market, then you may be able to achieve additional success in your SAM and thus continue to increase your TAM share. Investors like to see and understand a clear path to increased market share.
Let’s focus on your SOM and the target market group you decide are most likely to purchase your product or service. For example, if you are selling women’s perfume, you may decide to target single women ages 20 to 30 instead of teenage boys, even though teenage boys could decide to purchase the perfume for their mom or friend as a gift.
Understanding your target market will help you sell your products and services to that market. Sections in this leaf will provide standard questions that your research should answer. The type of information you research will depend on whether your business will sell to other businesses (BtoB or B2B), to consumers (BtoC or B2C), or to both.