Total Addressable Market provides an effective measure to gauge industry potential growth; while Serviceable Addressable Market identifies specific regions which make sense for your business model.
Understanding this dynamic is vital as you plot out your growth strategy and evaluate markets where investment might make sense.
What is a SAM?
Serviceable addressable markets (SAMs) are subsets of the total available market that a business can realistically target with their product or service offering, including customers who need their offerings and are financially capable of purchasing it. A serviceable addressable market (SAM) is determined by estimating total market size, identifying customer segments the business can target and estimating maximum product prices likely incurred by consumers.
If you own a sushi restaurant and plan on opening a branch in another city, first you will need to assess demand for its type of cuisine there. Estimate its market size based on factors like population demographics and eating patterns as well as revenue generated by similar establishments in other locations with comparable demographics. Once your SAM has been determined, calculate expected revenues using this factor.
Utilizing SAM data allows businesses to make better-informed decisions regarding how they allocate their resources and identify opportunities that will lead to success, while simultaneously preventing wasteful investments that could compromise their financial health. Startups and budding entrepreneurs can use SAM to pitch their business ideas directly to investors for funding; doing so demonstrates that their ideas are supported by sound research and analysis, providing proof of growth potential in their companies.
Identifying a SAM
Establishing a Sales and Acquisition Market (SAM) is essential to businesses seeking to gain insight into their customer base and revenue opportunities. A SAM is defined as part of the Total Available Market (TAM), and represents that segment which can realistically be targeted by their current capabilities, resources and ambitions.
TAM refers to the total market opportunity or revenue potential a business could capture if they were the sole provider of their product, without taking into account factors such as competition, geographical limitations, marketing budget restrictions or any other limits that may affect it. Meanwhile, SAM gives more realistic estimates of market size that a company might potentially target and can help calculate projected revenues as well as determine if their goals are on target.
Calculating their SAM requires businesses to first conduct extensive market research and identify customer demand patterns. After this step is complete, businesses should assess costs to reach prospective customers before estimating revenue potential using suitable pricing models based on business objectives. This process reveals more accurate depictions of market sizes that a business can realistically target while planning effective marketing campaigns with increased LCV projections and greater projected LCV. It may also assist companies when pitching ideas to investors as it shows what potential revenue growth they may achieve.
Calculating a SAM
Calculating a SAM requires businesses to collect and analyze customer information that indicates which customers may likely purchase their offering. This data includes demographic and locational details as well as product/service type information. Once this data has been gathered and analyzed, companies can use it to identify market segments and estimate LCV (Loss Cost Value), helping determine how much revenue may come from each customer.
SAM data allows businesses to efficiently allocate resources towards capturing leads and turning them into paying customers, as well as identify which markets offer greater profit potential – something essential when justifying investments in products and services.
If your company provides software to medical professionals, for example, then identifying hospitals within an area and estimating how many accounts each hospital could serve and their average annual contract value are key steps towards calculating your TAM; then compare this figure against your SAM to see how many customers you actually reach within it.
As market conditions can alter over time, it’s also essential that your SAM be periodically assessed and revised as your market landscape shifts. For instance, if your initial estimate was based on small businesses in Asia but now there are numerous middle-sized ones present, expanding market share might require targeting these niches instead of only targeting those comprising your original calculation.
Analyzing a SAM
When making financial projections or operational-related decisions, businesses need to understand their target audience size (SAM). SAM helps companies identify which portion of TAM they can realistically target while providing a basis for estimating marketing budgets and resources. Knowing the size of their audience also assists businesses with customer segmentation decisions which help convert leads into customers quickly while keeping current clients satisfied.
Calculating SAM requires identifying a target market for your product or service and then estimating how many people in that area would be willing to purchase it, taking into account factors like population size, demographics and demand for similar offerings in that region. Businesses can then estimate costs associated with reaching that audience as well as determine potential revenue through suitable pricing models.
Businesses can utilize SAM data to develop marketing strategies that will effectively reach their ideal demographic, increasing brand recognition and sales. They can also utilize this information to review existing customer segments and identify areas in which marketing and sales efforts need to be improved in order to keep existing customers. In general, using this data allows businesses to drive growth across all aspects of operations allowing them to maximize revenues while expanding their businesses.
