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Calculating Your Product Market Potential Exercise – TAM SAM SOM

Strategy
Let’s do an exercise to calculate the market potential for a product you might be building. There are many ways of doing this research, but I particularly like a TAM, SAM and SOM exercise: Total Addressable Market, Serviceable Available Market and Serviceable Obtainable Market...

I also prepared the video takeaways.

Takeaways:

When building a product, it’s important to understand the potential market that you can address with it. Calculations won’t give you a reliable answer about the market size but they will give you a better idea of your position.

  • SAM stands for Serviceable Addressable Market.
    • The SAM is the portion of the TAM that can realistically be reached and served.
    • To calculate the SAM, look into who among the potential market can realistically be serviced and take aspects that can affect the size of the SAM into consideration.
    • Some things can affect the size of the SAM, such as the time zone they are based in and the languages they can support.
  • TAM stands for Total Addressable Market.
    • The TAM is the total market demand for a product or service.
    • To calculate the TAM, research the potential market and take assumptions to reduce it to a realistic number.
  • SAM stands for Serviceable Addressable Market.
    • The SAM is the portion of the TAM that can realistically be reached and served.
    • To calculate the SAM, look into who among the potential market can realistically be serviced and take aspects that can affect the size of the SAM into consideration.
    • Some things can affect the size of the SAM, such as the time zone they are based in and the languages they can support.
  • SOM stands for Serviceable Obtainable Market.
    • The SOM is the portion of the SAM that can be captured or attained.
    • The SOM is challenging to estimate and involves guesswork.
    • To estimate the SOM you need to consider factors such as the scalability of the product or service, marketing efforts, and the time period for capturing the market
  • Take a “Bottoms Up” approach instead of a “top-down” approach to understand the market potential.
    • Using the bottom-up approach to estimate the TAM and SAM is recommended by considering the target market’s characteristics, limitations, and demand.
    • The top-down approach that estimates the TAM without considering the target market characteristics could lead to unrealistic market potential estimates.

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