How To Measure Market Size and Growth — Part 1
When it comes to launching a new product or entering a new market, understanding the potential size and growth of that market is crucial for a company’s success.
That’s where the concepts of Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM) come into play. These terms are commonly used to help companies gauge the potential of a market and make informed decisions about where and when to invest resources.
In this series of articles, we will explore what TAM, SAM, and SOM are and how to measure market size and growth using these concepts. We will also provide examples of how these concepts can be applied in real-world scenarios.
By the end of this series, you will have a clear understanding of how to use TAM, SAM, and SOM to measure market size and growth and make strategic decisions for your business.
Let’s begin with the series’ first article. In today’s piece, we’ll discuss TAM.
What is TAM?
Total Addressable Market
The total possible market for your company’s product or service, which represents revenue opportunity at 100% market share, as if no competition exists. As TAM is a snapshot of the entire market’s potential, it’s impossible to expect a company to capture this figure but it does reflect on potential revenues of a company, product or service.
Why Total Addressable Market (TAM) is Important?
TAM is an important tool for companies to evaluate the potential size and growth of a market, and make strategic decisions about where and when to invest resources and develop their products and services.
What Is Total Addressable Market (TAM) Used For?
1️⃣ Strategic Planning: Understanding the size and potential of a market is crucial for making strategic decisions about where to invest resources, developing a marketing plan and determining the feasibility of a product launch. TAM provides a comprehensive view of the market potential and helps companies to identify the most lucrative market segments to target.
2️⃣ Benchmarking: TAM is used to benchmark a company’s performance against competitors and the overall market. Understanding the size and potential of the market can help a company to identify areas for improvement and to set realistic growth targets.
3️⃣ Investment Decisions: TAM is used to evaluate the potential return on investment (ROI) for a new product or market. Investors, venture capitalists, and other stakeholders use TAM to evaluate the potential of a company or product and make investment decisions. To learn more about ROI, visit our “How To Drive Product Decisions with ROI” article.
4️⃣ Market Segmentation: TAM can be used to segment the market into different segments based on factors such as geography, demographics, and psychographics. This allows companies to identify specific segments of the market that they can target and tailor their products and marketing strategies accordingly.
5️⃣ Competitive Analysis: Understanding the size and potential of a market can provide insights into the competitive landscape and help companies to identify potential competitors and their market share. This information can be used to develop a competitive strategy and to identify potential partnerships and acquisitions.
How To Calculate TAM?
There are different ways to calculate the TAM of a market, but here is a general process that can be followed. It’s important to note that TAM calculation is not always an easy task and it may require the help of market research experts or consult with industry experts. Additionally, the TAM calculation may vary depending on the industry and product.
1️⃣ Identify the market: Define the market in terms of geography, industry, and customer segments.
For example, the TAM for a SaaS company in the US might be defined as the total market for SaaS solutions in the US.
2️⃣ Determine market size: Research the size of the market by gathering data on revenue, number of customers, or other relevant metrics. This data can be obtained from industry reports, government statistics, or other sources.
For example, if you are considering to expand your eCommerce business to Japan, you would want to take a deeper look into relevant industry reports, like this one from J.P. Morgan.
3️⃣ Forecast the TAM: To ensure a sustainable business, it is not sufficient to simply be aware of the current TAM; it is also crucial to have an understanding of the projected TAM in the coming years. Use market research and industry trends to forecast the potential growth of the market over a certain period of time. This will give an idea of the future potential of the market.
For example, see the TAM for cloud security spend worldwide from 2019 to 2024.
4️⃣ Consider limitations: Keep in mind that the TAM may be affected by various limitations such as market saturation, regulatory restrictions and other external factors.
Let’s Get To Work
To begin your exploration of TAM, we have compiled a list of the top tech sectors in TAM for your reference.
To receive the list of the Leading Tech Sectors in TAM kindly leave a comment requesting it, and we will gladly send it to you at no cost.
We have reached the conclusion of the first installment of this series. In the following pieces, we will delve deeper into additional metrics necessary for evaluating market size and growth.
It is important to remember that determining TAM is only one aspect of market analysis and further research is required to gain a more comprehensive understanding of the market opportunity.