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For you To help avoid these issues, we have put together a guide that will teach you exactly how to calculate your industry's total addressable market, the serviceable addressable market, and part de m arket. Read on to start setting realistic income goals and breaking into markets that are worth your time and resources.
TAM SAM SOM model
TAM (Total Addressable Market)
The total addressable market or TAM refers to the total market demand for a product or service. This is the maximum amount of revenue that a business can potentially generate by selling its product or service in a specific market. The total addressable market is very useful for companies to objectively estimate the growth potential of a specific market.
According to MIT's Global Startup Labs Program , the best way to calculate the total addressable market is to run a bottom-up analysis of an industry. A bottom-up analysis involves counting the total number of customers in a market (which you can do by adding up the number of customers of each company in that market).e) and to multiply this number by the average annual income of each customer in this market.
SAM (serviceable addressable marketplace)
Unless you are a monopoly, you are unlikely to be able to capture the total addressable market for your product or service. Even if you only have one competitor, it would still be extremely difficult to convince the entire market to buy just your product or service. This is why it is essential to measure your available usable market to determine how many businesses would realistically benefit from purchasing your product or service.
To calculate your addressable market, count up to all the potential customers that would be a good fit for your business and multiply that number by the average annual revenue of those types of customers in your market.
SOM (market share)
Market share is the size of your actual customer base or the realistic percentage of your usable addressable market that you can capture. This number can help you predict how much revenue you can actually generate in your market.
To calculate market share, divide your revenue from last year by the addressable market in your industry from last year. This percentage corresponds to your market share compared to last year. Then multiply your market share from last year by the addressable market in your industry since this year.
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