Last week, we looked at 3 markets you need to know, the TAM, SAM, and SOM. Let’s take a closer look at how you might derive those numbers, since pie in the sky guesses don’t help you or your business at all.
Let’s start with TAM. Data for the TAM is usually so broad that you’re going to be able to pull it from a major demographic data source like the Bureau of Labor Statistics or the Census Bureau. For example, if your overall market is a certain profession or vertical, hit up the Occupational Employment and Wages survey data from the BLS. These very large scale demographics data pools give you an idea of how many people in total there are in your TAM.
Next, look at the SAM. The key word in SAM is serviceable. How many people can you actually reach in your target market? This is going to be a question of your marketing capability. How much budget do you have? How many databases do you have legitimate access to? For example, let’s say I wanted to reach directors of marketing. The most logical place to start looking for this audience would be a social network like LinkedIn where people would volunteer this information:
Here we see a reasonable SAM. Assuming I had infinite budget, my SAM on LinkedIn is 318,249 people. I can, in theory, reach and provide service to all of those people with infinite budget. I can repeat the same exercise on other ad networks, such as Facebook:
Now we get down to brass tacks with SOM. The key word in SOM is Obtainable. How many of those people I’ve identified in the SAM step can I actually obtain? Doing this part requires significant math and understanding of your marketing processes. Let’s say, for example, that I have a stellar sales team that can close 50% of the deals they get. Let’s say I have a stellar marketing team that can achieve a 10% CTR on advertising. I therefore know that 5% of every click is going to become a sale.
Now my SOM is essentially restricted by my marketing dollars. If I have $1,000 to spend on advertisements, I can look and see what I’ll get on LinkedIn:
1,000 will get me an estimated 469 clicks. If I know 5% of every click turns into a purchase, then I know that1,000 of ad dollars will turn into 23.45 customers. My SOM on a $1,000 budget is 23.45 customers, the market that I can afford to obtain.
This is but one method of calculating these three markets, but it should give you plenty of ideas and inspiration to find your own databases, calculate how much of that database you can reach, and understand what your cost structures to reach that database are. From there, your goal as a marketer is to meet those objectives and ideally squeeze as much value out of your processes as possible.
I am just a freelance bookkeeper, and don’t have a marketing budget, so this really confirms what I’ve been doing so far. Thank you, Chris!