Estimate market size
As digital business builders, we regularly develop new digital business ideas and business models. An essential evaluation criterion is always the size of the market, because if the market is too small, development and investment are not worthwhile. Estimating the size of the market has thus become a mandatory component of every business case in companies and startups.
Especially for startups, the so-called TAM-SAM-SOM model is recommended, which enables a standardized and fast estimation of the relevant market potentials, also because traditional market analyses are often difficult to perform. TAM, SAM and SOM are abbreviations and stand for the following three markets:
TAM: Total Addressable Market or Total Available Market.
SAM: Serviceable Addressable Market or Served Available Market
SOM: Serviceable Obtainable Market or Target Market/ Share of Market
The TAM represents the greatest possible market potential. It answers the question of who could theoretically buy the product or service. All market barriers and competitors are ignored. The TAM describes the amount that a monopolist could theoretically realize in this market.
The SAM answers the question of which market shares of the TAM can be addressed with the specific product or service, or who could realistically buy it. The SAM is important because it shows the medium-term potential of the business idea and also because the exact target group is identified and defined here.
Finally, the SOM describes the market shares of the SAM that can actually be achieved over a foreseeable period of time. Here, the current competitive situation, production capacities, as well as marketing and distribution are taken into account. The SOM thus shows the sales potential for the first growth phase of the startup.