How To Measure Market Size and Growth — Part 2
Welcome back for the second article in our series on measuring market size and growth. In our first article, we introduced the concepts of Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) and explained why understanding the potential size and growth of a market is crucial for a company’s success.
In today’s piece, we’ll dive deeper into SAM and explore what it is, how to calculate it, and why it’s important. This series of articles will provide a comprehensive understanding of how to use these concepts to measure market size and growth and make informed decisions for your business.
We’re excited to share our expertise and provide valuable insights that you can apply to your business. Let’s continue our journey of exploring the subject, focusing on SAM!
What is SAM?
Serviceable Available Market (SAM) is a subset of the Total Addressable Market (TAM) that represents the portion of the market that a company can realistically serve with its current offerings, sales channels, and marketing efforts.
Why is it important?
The idea behind SAM is to help companies understand the size of the market that they can realistically serve, taking into account their current resources and capabilities. By calculating SAM, companies can better understand the potential size of their business and make more informed investment decisions.
For example, a company that sells products online and through retail stores would have a different SAM than a company that only sells products through retail stores. With two channels, the first company is able to reach a broader market, convert more leads into customers resulting in a larger SAM.
It is important to note that SAM can change over time as a company’s resources, capabilities, and offerings evolve, so it is important to regularly revisit and update these estimates.
How to use SAM as a product managers?
As a product manager, you can use the concept of SAM to make informed decisions about product development and market entry strategies. Here are some ways you can achieve that:
1️⃣ Assess market potential: By calculating SAM, you can get a better understanding of the potential size of your market and determine whether it is big enough to justify the investment in a new product or service.
2️⃣ Allocate resources: By knowing the size of the SAM, you can make informed decisions about how much to invest in developing a product, how to price it, to ensure a high ROI.
3️⃣ Evaluate market entry strategies: If you are considering entering a new market, you can use SAM to assess the sizes of different opportunities and determine whether or not it is worth the investment. If you decide to go into a new market, the size of the SAM will help you to make informed decisions about the size of the sales force you need, the types of distribution channels you should use, and the types of marketing campaigns you should launch.
4️⃣ Monitor market performance: As a product manager, you should know your market like the back of your hand. One way to monitor market performance is to monitor SAM in a particular market over time. By regularly updating your SAM estimates, you can gain insight into how your market is changing and how your product is performing relative to the market opportunity, which includes TAM and competitors’ SAM.
5️⃣ Make informed product roadmap decisions: By knowing the size of the SAM, you can make informed decisions about the types of products and services to develop, how to prioritize your product roadmap, and how to allocate resources to different product development initiatives.
In conclusion, as a product manager, using the concept of SAM can help you make informed decisions about product development, market entry strategies, resource allocation, and monitor your market performance over time.
I’m convinced. Tell me how to calculate SAM.
Happy you asked! Calculating Serviceable Available Market (SAM) requires you to estimate the size of the market that you can realistically serve with your current offerings, sales channels, and marketing efforts. Here are the steps you can take to calculate your SAM estimation.
1️⃣ Uncover the Treasure Trove: Estimate TAM
The first step in calculating SAM is to estimate the Total Addressable Market (TAM), which is the total size of the market for a particular product or service. This estimate should be based on market research, industry reports, and other relevant data sources. In case you missed it, we have a full article about what is TAM and how to calculate it.
2️⃣ Map Out Your Reach: Identify the Serviceable Market
Next, you need to determine the Serviceable Market, which is the portion of the TAM that you can realistically serve given your current capabilities, resources, limitations and infrastructure. In this step, you would want to consider things like distribution channels, sales force, marketing budget, geographical limitations, legal regulations, and more.
3️⃣ Chase the Prize: Calculate the SAM
To calculate SAM, you simply need to multiply the Serviceable Market by your estimated market share. Your market share is the percentage of the Serviceable Market that you expect to capture with your current offerings, sales channels, and marketing efforts.
In summary, calculating SAM requires you to estimate the size of the Total Addressable Market (TAM), determine the Serviceable Market that you can realistically serve, and multiply that by your estimated market share. This will give you an estimate of the Serviceable Available Market for your product or service.
Show me how it’s done.
Let’s walk through an example of the above-mentioned steps.
Let’s say that the TAM for a particular product or service is $1 billion, and you estimate that you can realistically serve $500 million of that market with your current capabilities, your Serviceable Market would be $500 million. If you estimate that you can capture 10% of that market, your SAM would be $50 million.
It’s important to note that SAM is an estimate, and it can change over time as market conditions change, your company’s capabilities evolve, and your competition evolves. Therefore, it’s important to regularly revisit your SAM estimates and make updates as needed.
We have reached the conclusion of the second installment of this series. In the following piece, we will delve deeper into additional metrics necessary for evaluating market size and growth.
It is important to remember that determining SAM is only one aspect of market analysis and further research is required to gain a more comprehensive understanding of the market opportunity.
We want to hear from you! 🎤
Have you enjoyed the article? Do you have anything to add? Are you currently using the TAM, SAM and SOM concepts in the context of product managment?
Leave us a comment or reach out to us directly at emailtheproductjourney@gmail.com!
