Opportunity
In this Lesson
[Day 8/30: Product Manager to CEO 30 Day Challenge] Let's talk about total addressable market (TAM). We all know what the total addressable market is, but how do you determine it?
If you're a startup, the TAM can be a great tool for thinking about your growth potential. It's more than just a number—it's an understanding of how much of your industry is available to you.
When you're trying to determine the size of your target audience, there are a few things to consider. TAM, SAM and SOM. All three of these metrics are used to determine how much money is available in a particular industry and/or geographic location.
Total Addressable Market (TAM)
This is the number of people who could potentially use your product. It includes both existing users and potential new users. For example, if you have a product that helps people with their finances, there are many people who don't use any kind of financial software or app at all who could potentially be interested in using it. The calculation includes all potential customers who could purchase from the company within its current industry and geographic area of operation. It also includes all current customers who could purchase more products or services from the company during that same period of time.
Segmented Addressable Market (SAM)
This is the number of people who will actually buy your product. It excludes people who don't have the money to spend on it and those who don't think it's worth the price tag (for example, if they already have something similar).
Segmented Optimal Market Size (SOM)
This is the size of segment that will make the most money for you—that is, not only will they buy from you, but they'll also pay more than other segments would for what you're selling. SOM is similar to TAM in that it includes both existing and potential customers for a product or service over a specific period of time. However, SOM focuses specifically on existing customers who are likely to purchase additional products or services during that same period of time
