Let’s say you want to open a lemonade stand. Before setting it up, you should know how many people might buy lemonade from you. Focusing on market size would help.
Market sizing is the practice of gauging the size of your company’s potential customer pool. For a lemonade stand, it’s like looking at your neighborhood and counting how many people live there, how many of them you can realistically serve, and whether there are other lemonade stands nearby. This information helps you decide whether it’s worth investing in setting up a lemonade stand, how big it should be, and how many cups of lemonade to prepare.
Market sizing can be complex, but it’s worth the effort. Studies show that companies that dedicate time to growth mindsets are 2.4 times more likely to outperform their competitors. So let’s take some time to break down three frameworks of market sizing—total available market (TAM), the serviceable available market (SAM), and the serviceable obtainable market (SOM)—and how they can help you develop effective sales strategies.
Total Available Market
TAM represents the entire potential market demand for a product or service without any constraints. It provides a broad overview of the market opportunity, including all possible customers, regions, and segments, assuming there are no limitations imposed by geography, competition, etc.
In our lemonade example, everyone in the neighborhood might fancy a refreshing drink on a hot day, so you’d think about how many houses there are, how many people live in them, and how many might be passing by your stand. Based on this understanding, you could determine how many cups of lemonade you might sell in total if every potential customer were to buy from you.
Understanding TAM helps companies grasp the full scope and potential of their market. However, it’s a bit too general of a view, which is why it’s important to narrow your focus and take SAM and SOM into account.
Serviceable Available Market
SAM segments portions of the TAM that a company can realistically target and serve based on its capabilities, resources, and competitive positioning. Think of SAM as a smaller group within a big pool of potential customers.
When selling lemonade, the SAM is a bit more specific than the TAM because it focuses on the folks within reach of your stand and your capacity to supply them with cool, refreshing lemonade. The SAM helps you understand the actual number of customers you can realistically serve with your lemonade stand, which helps plan how much lemonade to make and where to set up shop. Doing so helps you identify specific regions where you have a competitive advantage and can effectively compete.
Serviceable Obtainable Market
SOM further refines the SAM by considering the market segments a company can realistically capture with its existing resources and capabilities. It represents the achievable portion of the market and helps companies set realistic sales targets and objectives.
So, while the TAM is everyone who could possibly buy lemonade, and the SAM is those who are within reach, the SOM is the group you can realistically expect to serve based on your resources and setup while also considering whether there are other lemonade stands in the area competing for your business.
It’s like narrowing your focus to the folks most likely to swing by your stand and buy a cup of lemonade. You’re not aiming to serve the whole neighborhood—just the portion you’ve built a relationship with and can count on to support your lemonade stand.
Grasping the concepts of TAM, SAM, and SOM is key to effectively allocating sales and marketing resources, whether you’re selling lemonade or closing multimillion-dollar deals. By understanding TAM, SAM, and SOM, companies can optimize the allocation of their sales and marketing resources and concentrate their efforts on the most promising market segments where they have the highest probability of success.
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Fullcast was built for RevOps leaders by RevOps leaders to bring together all of the moving pieces of our clients’ sales go-to-market strategies and automate their execution. We seamlessly connect go-to-market planning activities with tactical sales execution, enabling your operations, sales, finance, and customer success teams to make continuous adjustments in response to real-time strategy changes. From territory management to performance tracking, we operate with speed, agility, and AI-powered automation.
