When it comes to marketing, it’s helpful to know what kind of market you’re going to be addressing. There’s a terrific framework that many venture capital and private equity firms require to be researched before they’ll fund you, and it’s a framework that every business needs to take a look at.
The framework is elegantly simple and abbreviated to three acronyms: TAM/SAM/SOM.
Your TAM is your Total Addressable Market. In all of the world, what percentage of people broadly need the category of product or service that you’re offering? For example, I used to work in student financial aid. The TAM of that market is all college students plus all graduate students plus all inbound students.
The key question to ask about your TAM is: who COULD buy our services?
The second area is the SAM, or the Serviceable Addressable Market. What percentage of the total market is serviceable or reachable for your product or service specifically? Using the example above, not every student is eligible for financial aid, nor does every student need to borrow. There’s a percentage of that market that is eligible, qualified, and has a demonstrated need for our product or service, no matter who they buy it from.
The key question to ask about your SAM is: who IS going to buy our service from some vendor, whether or not it’s us?
The final area is the SOM, or the Serviceable Obtainable Market. What percentage of the SAM is realistically obtainable? What piece of the pie can your business realistically convert into revenue? This is fundamentally about your market share and what you think your efforts will yield.
The key question to ask about your SOM is: who is going to buy our service from US?
One of the most critical mistakes that marketers make is developing unrealistic views of their three markets. You’ll hear a lot of novice marketers and business executives say things like, “Well, EVERYONE can be our customer!” which is only true for a few select industries (like funeral services). Most of the time, most people are not going to be your customer. Identifying who can be should be the foundation of every marketing program.
The more aggressive you can be in your whittling down of TAM, SAM, and SOM, the more focus you’ll bring to your marketing program, and the less money you’ll spend marketing to people who are ineligible or uninterested in your products or services.
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