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Using Estimates of TAM, SAM, and SOM

Successful B2B businesses use mountains of data to out-think, out-smart, and out-perform their competitors. In most cases, this starts with realistically estimating the size of the market for their offerings and segmenting the results. Applying detailed, market-focused analyses distinguishes major competitors from struggling participants.

Three key measures of market size factor into every plan:

  • Total addressable market (TAM) – This measures the grand total market opportunity for your type of offerings from you or your competitors in all viable segments over the long term (typically about 5 years).

  • Serviceable addressable market (SAM) – This measures the portion of TAM that you can realistically reach given your distribution of resources and budget constraints for segments that you pursue in the medium term (typically about 2 to 3 years).

  • Serviceable obtainable market (SOM) – This measures the portion of SAM that you believe you can realistically capture for segments that you target in the short term (typically this year and next year).

Your current customers are typically part of SOM, although a few outliers may exist in segments that you have not yet explicitly targeted.

For some very large corporations, SAM could be identical to TAM. They have the resources and the money to cover all viable segments for their offerings. If that is the case, then SOM becomes a market share game. To grow, either the market must expand or they must implement more effective and efficient marketing and sales tactics than their competitors.

Most corporations have limited resources. They cannot reach all viable segments. To generate growth, they work to retain existing customers and to gain market share in their current segments. But they also have the option of expanding into other viable segments.

In all cases, accurate market data for TAM, SAM, and SOM should guide tactical and strategic growth plans.

Business insights are not always readily apparent. Careful data compilation and analytics incorporate detailed data for the segments of interest to your business. They include countries, industries, and business sizes.

Robust near-term and long-term market size estimates highlight opportunities for growth and identify risks that squander resources. Market analyses with detailed segments help focus your efforts on segments that offer the most potential. This in turn yields more effective and efficient marketing and sales which lowers your cost for successful customer acquisition.

To develop optimal market size estimates and use them effectively:

  • Compile and integrate the right data and analytics to support decision-making

  • Find the best market opportunities for your company

  • Select segments to minimize obvious and lurking risks

  • Allocate the right resources in the right roles with the right goals

  • Position yourself to get more than your fair share

When done correctly and comprehensively, the results meet stakeholder needs and generate actionable information for marketing, sales, and planning. Short-term tactical planning optimizes your resource allocations this year and next to maximize success. Long-term strategic planning positions your company to achieve its aspirations several years from now.

Estimating market size by detailed segment takes time, but ultimately it saves time and resources. With it, you can gauge your penetration, share, profitability, and performance by market segment. You can also identify which segments you should pursue for growth, which you should put in maintenance mode, and which you should sacrifice since they waste time and resources. The process yields better sales, marketing, and corporate tactics and strategies that generate improved marketing, sales, and business performance

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