What are TAM, SAM, and SOM? A Guide for Sales Reps and Marketers

TAM SAM SOM is a powerful framework that sales reps and marketers can use to understand the potential size of their target market, and the marketing strategy essential to achieving success. 

But why do these frameworks matter, what do they mean, and how are they used? We dive deeper below. 

What are TAM, SAM, and SOM?

TAM, SAM, and SOM are acronyms used in marketing to help guide how a company develops and implements its sales strategy. TAM stands for Total Addressable Market, SAM stands for Serviceable Addressable Market, and SOM stands for Serviceable Obtainable Market.

Here’s a closer look at each. 

TAM

Total addressable market, or TAM, is the total number of potential customers that exist for a product or service. This number is usually estimated using precise demographic data that is collected from a variety of sources. 

For example, a company that sells organic fruits and vegetables may conduct market research to determine their TAM. They would look at the population size of an area, the local preferences for produce, and the overall spend in the relevant category. After considering those factors, they would have an estimate of the total addressable market - the number of potential customers they could potentially reach.

SAM

Serviceable available market, or SAM, is the number of potential customers who are reachable through marketing or sales efforts. In other words, knowing your SAM lets you know how many customers you can acquire depending on how your business model is structured.

There are many factors to consider when calculating SAM, such as geography, buying power, and products or services offered. 

For example, a business that sells technology products may want to target a certain segment of the addressable market that consists of large corporations and businesses. They would have to consider factors such as the size of their sales team, the types of products they are selling, and the regions they operate in. 

After considering those factors, the company could have an estimate of the SAM – the number of potential customers they can realistically reach with their current resources.

SOM

Serviceable Obtainable Market, or SOM, is the number of potential customers who can be realistically sold to. This number takes into account factors such as sales cycle, budget, and competition. For example, if a company has limited resources, SOM would be lower than SAM.

Why is knowing TAM SAM SOM important?

TAM, SAM, and SOM are important metrics to consider if you want to create and execute an effective sales strategy. As calculations, they provide a realistic and data-driven picture of a company’s potential market size.

Companies use these metrics to make more informed decisions about their products and services, where to allocate resources, and how to focus their sales efforts. Plus, these metrics can also be used to identify target markets, set objectives and goals, and track sales performance over time.

Additionally, if you’re a startup entrepreneur, potential investors want to know your TAM SAM SOM as a good way to gauge success, valuation, the weight of your value proposition, as well as how much risk they’re willing to take on. Entering a new business that presents a revenue opportunity requires creating a business plan with more than just a business idea. 

Calculating TAM SAM SOM

Say you’re an entrepreneur diving into new markets and you need to find out your business idea’s market potential. Keep these calculations in your back pocket as general templates you can use for market analysis. 

How to Calculate TAM

To calculate the total portion of the market, your TAM, you simply multiply the number of potential customers by their potential customer spend (sometimes known as total contract value). 

The formula looks like this: 

TAM = (Potential Customers) x (Potential Customer Spend)

How to Calculate SAM

SAM allows you to determine the maximum potential revenue and profitability a company can generate in a market. It takes into account the overall potential a market has and then adjusts the size to reflect the impact of market share and market growth.

To find your SAM, multiply the number of customers by the average annual revenue you’d get from them. 

The formula looks like this: 

SAM = (Number of Potential Customers) x (Their Average Annual Revenue)

How to Calculate SOM

SOM is the final number you’ll arrive at after taking into account factors like budget, competitors, customer preferences, and sales cycle. This is the number you can realistically expect to acquire or sell to as a company.

To find your SOM, multiply last year’s market share numbers with this years SAM. 

Here’s the formula: 

SOM = (Last Year’s Market Share) x (This Year’s SAM)

TAM example

A company that produces chocolate bars may determine their total available market (TAM) to be the entire population of the United States. 

SAM example

After some market research, the company may then determine their serviceable addressable market (SAM) to be the population of the United States who have the buying power and are reachable through their current marketing efforts.

SOM example

The company’s serviceable obtainable market (SOM) may then be determined to be the population of the United States who are most likely to purchase their chocolate bars via their current budget and sales efforts.

How to use B2B data to accurately calculate Tam, SAM, and SOM

By using a B2B contact and intelligence platform like Apollo.io, sales and marketing teams can easily access accurate and up-to-date data to accurately calculate for TAM, SAM, and SOM. Apollo.io provides access to a vast database of contacts and companies, enabling sales and marketing teams to segment their target market precisely and track their results in real-time.

Apollo not only provides detailed contact and company data, but also access to web-based profiles and email signatures to enable teams to identify decision-makers, budget holders, and other vital roles in the buying process.

This allows teams to accurately calculate for TAM, SAM, and SOM, as it takes into account who is making the buying decisions, who holds spending power. Apollo’s enriched contact intelligence and analytics also provide teams with a deeper understanding of their target audiences. 

Advanced search capabilities and filtering allow teams to easily hone in on their target market, enabling more accurate TAM, SAM, and SOM calculations with greater precision and efficiency

In addition, sales and marketing teams can use Apollo.io’s insights and analytics to develop effective sales and marketing strategies. Teams can understand the customer journey, the impact of their campaigns, and the performance of their outreach efforts, providing them with the data-driven insights necessary to optimize TAM, SAM, and SOM calculations.

Beyond TAM SAM SOM

Without a doubt, knowing your total market demand and revenue forecasts are a big part of gauging business opportunities. But that’s not all. If you’re in the B2B space, making those sales is crucial to growing any business.

This is where solutions like Apollo.io come in.

With data-driven insights like customer intelligence, account scoring, and segmentation, they help you discover the best target accounts, map out the decision-makers, track conversations and analyze conversations to understand the context behind what buyers are saying. Apollo.io also helps you track your progress against your target market and make sure you’re reaching the right people with the right message

Use predictive analytics tools to understand future market demand and trends. This way, you can create more effective marketing strategies that anticipate customer behavior.

Get started with Apollo.io here.