Market sizing is crucial for any business or startup. It can be done by using any established model.
TAM - Total addressable market:
It is the overall revenue opportunity that is available to a product or service if 100% market share was achieved. It is the total demand for a product or service that is calculated in annual revenue. It is also referred to as the "Total available market".
It gives estimates of efforts and funding required to launch/offer specific products/services and prioritize customer segments. This helps in assessing the total potential of the market of that service
SAM - Serviceable Addressable Market:
It is the fraction of the market (customers) who are really looking to buy products or services from our business or any other competitor. In other words, the demand for the product you are offering is within your reach (geographically) with the current business model. The more accurate the SAM, the more sales. It is also referred to as the "Served available market".
SOM - Serviceable Obtainable Market:
This is the fraction of SAM that the business can realistically capture. It gives, the market that the business is realistically able to target given the limitations of resources and the presence of competitors. SOM is the one that matters the most as it is the short-term goal and helps to monitor progress. It is also referred to as the "Share of the Market".
Example:
Let's say, you start a cab service in India. Now, the total transportation market in India is considered TAM. It's just a theoretical value because you are considering you are the only one who provides this service and there's no other competitor
Let, TAM = 1000 crores
Consider you are currently starting your service in only 10 major cities in India. And the demand for taxi service (from your company or other competitors) can be estimated by keying in various factors like population, income, transportation facilities etc., So only the market in these cities forms your SAM.
Let, SAM = 500 crores
Since you are not the only player in the market (there are other competitors as well), you will only be able to capture only a fraction of SOM and the remaining would be captured by other competitors.
Let's say 30% of SAM = SOM = 150 crores
So, 150 crores, is the annual revenue your business will be eyeing for the year.
Basically SOM is a subset of SAM, which in turn is a subset of TAM
These help in evaluating business opportunities and making informed decisions in the business. There are different methods to calculate TAM, SAM and SOM while considering multiple factors.
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