Introduction to TAM, SAM & SOM
What is Total Addressable Market in B2B, and why is it important?
Total Addressable Market (TAM) is an essential metric which is used for market sizing while curating an effective demand generation strategy. It is the total revenue potential which a market holds for a product or a service. It becomes the baseline for all the funding plans and marketing efforts because TAM indicates the economic potential of a given market.
There are a few integral purposes which TAM serves.
- Helps marketers to lay the roadmap for their product life cycle.
- Gives directions to evaluate the product-market fit potential.
- It brings competitor analysis and benchmarking into perspective early on.
- Draws investors’ interest when they get clarity on the full market potential.
- TAM leverages risk assessment by identifying challenges with opportunities.
What is SAM, and how is it different?
As the name suggests, the Serviceable Available Market is a sub-sect of TAM. Without absolute monopoly and unlimited funding it can be highly unlikely to capture the entire Total Addressable Market. The serviceable available market is an approach which divides TAM into subdivisions. It is for categorizing users into different segments as per geography, industry, product, competition etc.
How does SOM zero in on reality?
Serviceable Obtainable Market carves out the portion of SAM which a business can actually capture and cater to. In the B2B industry, this strategy is usually practiced by businesses which want to capture the achievable market over a fixed period. There are clear-cut objectives, like maximizing awareness, generating demand and acquiring lead conversions. All the marketing strategies revolve around pre-determined performance metrics.
What this blog delves into?
The purpose of this blog is to introduce you to the concepts of TAM, SAM and SOM, with a step-by-step derivation process for each approach. Furthermore, it will elaborate on how TSL Consulting determines the scope of a market with the strategies mentioned through data-driven analytics and forecasting models. In addition, it will highlight the approach, methodology and value proposition while mapping the potential customers in a market for our tech-driven enterprise-grade clients. Moreover, it throws some light on how our 20+ years of experience have equipped us to conduct research and analysis and provide real-time insights. Therefore, laying a foundation for modernized B2B inbound and outbound marketing strategies.
Basic Differences in TAM, SAM & SOM
TAM: Total market demand if 100% market share were achieved.
SAM: The segment of TAM targeted by your products and services.
SOM: The portion of SAM that can realistically be captured.
What is Total Addressable Market in B2B?
In B2B, TAM provides a critical baseline for growth planning, influences investment decisions and helps prioritize resource allocations by revealing the industry’s full economic potential. It helps companies benchmark their current performance against the full market potential and identify gaps and competitive advantages.
Process and Derivations
The Different Approaches to Calculate TAM
- Top-Down Analysis: Evaluates macroeconomic indicators to gauge overall market potential.
- Bottom-Up Analysis: Focuses on local segments and scales data to estimate broader market opportunities.
- Value Theory: Assesses the additional benefits and offers delivers over current alternatives.
TAM Formula:
1) Determining SAM in B2B
SAM is that portion of TAM which is realistically accessible based on certain factors like;
Target Customer Profiles: Evaluating Industry-specific adoption rates and their size. (e.g. small business vs. enterprises)
Geographical Constraints: Optimizing go-to-market time by excluding the geographical regions with regulatory barriers.
Product Fit: Shortlist companies where your product or service will have fitment value.
Market Segmentation Techniques: Identifying industries, use cases and fetching firmographic information, that aligns with your offering.
SAM Formula:
Example (IT Industry)
Let’s say a CRM software provider determines that TAM evaluation is $ 20 billion. However, only 30% of the companies (mid-sized and large enterprises) in the market have a strong CRM adoption rate. Thus,
SAM= 20B X 0.3 = 6B
2) Deriving SOM
SOM is that focused section of the SAM that a company can capture, factoring:
Competitive Landscape: An analysis of the market shares of the competitors and the purchase drivers of their buyers.
Brand Differentiation: The specific and unique problem-solving value propositions which make your offering attractive to your customers.
Operational Capacity: An internal analysis of the sales team size, distribution channels and marketing reach.
Historical Data and Predictive Analysis: An integral part of the process where insights on sales trends and AI-powered forecast models.
SOM Formula:
How TSL Helps in Market Intelligence for TAM, SAM and SOM.
TSL goes a step further to enhance demand generation initiatives for its global and local clients. Here are a few data gathering features and forecasting methods we implement:
Talk-to-Database: An AI-powered self-owned model which gives you access to instant data identification. Here’s how we help you with real-time insights for informed market analysis.
- Real-time geo, techno & firmographic results: Our in-house platform aggregates real-time data and details. Fetching focused on the targeted geographies, technology stack, and specific functions and characteristics of potential business accounts is what we do best. Moreover, our team of profound development experts are equipped with AI-driven forecasting models which can map individual business accounts and get client-specific information. This method is used to realistically derive at Serviceable Available Market (SAM).
- NLP-powered (Natural Language Processing) market universe mapping: Leveraging advanced Natural Language Processing, TSL helps you to transform unstructured data into a more visible market landscape. This mapping process reveals hidden market trends and competitive insights, allowing for precise targeting and opportunity identification. This solution helps our clients to refine the Serviceable Obtainable Market (SOM).
- AI/ML-potent Big Data-driven analysis: With expertise in AI and Machine Learning, our solution processes massive data sets to uncover insights on the total market’s potential. We segment the market further to analyze the target companies as per industry, product, geo, technology and financial capacity to determine the overall revenue potential. This becomes an essential tool for determining the companies in the purview of the Total Addressable Market.
- TSL’s Company Data Extractor: This is our winning platform which delves deeper into refining SOM, where granular level account mapping is required. It fetches specific information on parameters like company size, latest news, HQ/Branch Locations, technology stack info etc. This account-based marketing strategy is used for hyper-targeting of high-potential accounts.
TSL’s Value Proposition
TSL has 20+ years of experience as a growth partner to global and mid-size tech-driven companies for marketing and sales process outsourcing. We have helped many companies enhance their market analysis by aggregating real-time insights and accurately assessing TAM, SAM and fine-tune SOM. In addition, with our AI/ML-powered analytics we help in identifying realistic opportunities, optimize targeting and maximize market penetration.
The Final Message
By now you must have had a fair idea of what TAM, SAM and SOM are. However, if these methods are not supported by real-time insights, figures and facts, it can give misleading representations and result in fruitless marketing efforts.
TSL has gained proven experience to map different types of markets for different stages of your product and service life cycles and generate demand from it.
Let’s connect over an introductory call and explore your full market potential.
Call us on +91 9529286060 or mail us at smohite@tslmarketing.com
