- Efficient growth
- Posts
- How to properly assess your market
Hope you’ve had a great week.
Bottom Line Up Front: The market you serve dictates the problems you solve, the price you charge and the product you build. Make sure you’re fighting in the right arena.
In today’s letter:
Definitions of TAM, SAM and SOM
Step-by-step process on how to assess your market
Key definitions to understand
Total Addressable Market (TAM): This is your big dream - the total market demand for your product or service. It represents the maximum revenue opportunity available.
Serviceable Available Market (SAM): This is your realistic playing field - the portion of TAM that you can actually serve, considering your current business model and reach.
Serviceable Obtainable Market (SOM): This is your immediate goal - the part of SAM that you can realistically capture in the short to medium term, given your resources and competition.
Process to assess your market
—
1. Define your audience
Start by clearly defining what your product or service is and who your target customers are. Early on, this will likely just be a hypothesis—it can be validated later.
—
2. Calculate TAM
Use industry reports, research and a bottom-up approach to estimate the total market size.
Example calculation:
Target customer: SMBs in the tech sector.
Average Revenue Per Customer: Assume an average subscription fee of $10k per year.
Market research: Research shows there are 50,000 SMBs in the technology sector in your target market.
TAM Calculation: TAM = 50,000 SMBs × $10,000 = $500 million.
Tip: Give ChatGPT a try, here’s what I was able to achieve with only a few minutes of effort.
—
3. Refine to SAM
Narrow down TAM based on your business model, reach, and industry factors.
Try to answer these questions:
Can you really sell globally or are you only able to reach the local market?
Which consumers can realistically afford your product?
Which group of consumers are most likely to be interested in your product?
Example: SMB tech companies in English-speaking EU countries who can afford your product.
—
4. Focus on SOM
Dig deep into your capabilities, competition, and strategy to estimate the market share you can realistically capture.
Try to answer these questions:
What segments within your SAM are most accessible?
Are you limited by resources? (e.g. can’t afford paid advertising or don’t have the right people)
What companies are you positioned to attract and win?
What people within these companies can you help the most?
Enjoy the weekend,
Liam
Recommended content
What do you think of today's letter? |