We use the term marketing often, but we rarely talk about markets, the groups of people we market to. What does our market look like?
If we don’t know who our market is, we’ll spend hours and dollars in vain, failing to generate results. On the other hand, if we know exactly who our market is, we will maximize our impact and results.
Sequoia Capital created a terrific framework for marketers and business professionals to use; it’s a pre-requisite for any company seeking funding from them.
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, suppose we work at an espresso chain that serves an amazing $8 espresso. Our total addressable market is anyone who drinks coffee.
The key question to ask about your TAM is: who could buy our category?
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 everyone who drinks coffee likes espresso. Depending on the kind of espresso we serve, perhaps not even all espresso drinkers would like our espresso. Not everyone will be willing to pay $8 for an espresso, either. All these limitations shrink our TAM down to our SAM.
The key question to ask about your SAM is: who could buy our product specifically, regardless of vendor?
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. If we have a brick and mortar espresso shop in Las Vegas, we are unlikely to serve anyone from the Boston market, or even the Reno market. If we have one of a dozen espresso shops in town, what percentage of the town’s population do we actually serve?
The key question to ask about your SOM is: who is going to buy our product 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 is your customer is 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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Also published on Medium.