Market Sizing Concepts: What is SAM?
Effective market sizing doesn’t just tell us how much we might sell. It tells us how what to make, how much to make, what to invest, who to hire, how to get to market, why customers buy, how to price, what our support needs will be, and more. Failure to adequately size markets leads to failed market understanding – and failed business.
This is one of a series of posts for Analyst Syndicate clients on understanding and applying cornerstone concepts in market sizing. This post focuses on the concept and reality of Serviceable Addressable Markets (SAM). SAM helps the business understand not only what it might sell and to whom, but also what it takes to make that happen.
What is Serviceable Addressable Market (SAM)?
As noted in the previous post, a Total Addressable Market (TAM) is what could possibly be sold by everyone in a market. A SAM is what our own firm might sell, with our resources, as our business develops; i.e., how much of the TAM is potentially serviceable by our firm. SAM is the share of market revenue that we can realistically obtain and maintain over time. It is the opportunity that exists within our known capabilities and ambitions. Figure 1 illustrates the fundamental difference between SAM and TAM.
Figure 1: SAM is a slice of TAM
Source: Addressable Markets LLC, July 2021
Critical Factors for SAM
SAM is based on what we can see developing and happening in our chosen market(s). This includes what our competitors are doing and not doing, and where. In order to develop realistic SAM estimates, we need good data on what is being sold, by whom, for how much, and where and when it is being sold.
SAM also requires realistic segmentation of buyers. Such segmentation need not be supremely detailed, however. It can be based on fairly simple data on what customers are already buying, and what alternatives customers will prefer, and move toward, from their current preferences.
But the SAM itself must be based on comprehensive, fact-based market intelligence – not just data analysis. Sales data, both real and estimated, are fairly straightforward to obtain for most markets. But we need to look beyond the numbers. We need to understand how providers compete. We also need to understand what customers want, and why they are willing to buy. What needs do they have, what are they willing to accept as an offering, and what triggers their buying? Is the need critical; is the need (and therefore the price) affected by availability; and so on.
Comprehensive SAM Benefits
An effective SAM exercise frames our potential selling arena and provides us with a reasonable estimate of potential revenue. It also:
- Enables differentiation based on buyers’ preferences and perception of value. Understanding why customers buy, and prefer, competitors’ offerings is a critical element in effective differentiation for companies and offerings. Most Sales and Marketing professionals understand this, but are not familiar with how understanding SAM enables better understanding of Sales and Marketing differentiation. SAM development includes careful profiling of buyers’ preferences and behavior so that the business can reasonably estimate what will drive buyers to prefer their offering.
- Enables scoping of resources required to build and sustain business. Market sizing and revenue projections are only relevant if the business can reach and support buyers. But if the offering cannot reach the buyer, or if the buyer requires something beyond the offering to experience value, then the market is not “addressable.” SAM helps to identify, scope, and estimate go-to-market strategy and spending requirements including channels, partners, distribution, and more.
- Helps to “de-risk” investment. In the first post of this series, I noted several benefits that investors realize from effective market sizing exercises like TAM and SAM. SAM exercises in particular help investors understand their relative risk of investment, by indicating the following:
- Competitive environment
- Management vision of go-to-market
- Business plan viability
- Profitability likelihood
In sum, SAM helps the business understand not only what it might sell and to whom, but also how that should be achieved. Where TAM is an indication of market-wide scope, SAM is an indication of our own scope of capability and reach.
Next in this series: How much can we actually sell, today? A solid SOM (Serviceable Obtainable Market) estimation shows us the answer.
To help Finance, Sales, and Marketing leaders – and investors – understand market opportunity and achieve realistic results, we regularly conduct workshops on TAM, SAM, and SOM for software vendors and IT services providers. We quickly and cost-effectively provide objective, data-driven, experience-built insights and recommendations regarding:
- Sizing estimates for new or existing technology and services markets
- Go-to-market plans and positioning
- Customer support needs and expectations
- Channel partner characteristics and requirements
Find out more: email@example.com