Understanding the true market potential for your product is critical for product managers. Quantifying key metrics around addressable market size empowers product managers to make smarter strategic decisions, allocate resources more effectively, and set realistic growth targets. The key acronyms to understand are Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM). Properly defining and leveraging these market size metrics can mean the difference between runaway success and lackluster product-market fit.
What is TAM, SAM, and SOM?
Let’s quickly define what TAM, SAM, and SOM stand for and how they are related:
TAM – Total Addressable Market
This refers to the total market demand for your product. It represents the maximum revenue opportunity, or the total number of customers, available to your product if you achieve 100% market share. Understanding the full TAM helps frame the broader context and assess just how big the opportunity can get.
SAM – Serviceable Available Market
This focuses on the segment of the TAM that you can serve with your product and business model. It incorporates realistic constraints like geography, language, platforms, and other factors that may limit your ability to reach all customers in the TAM. SAM helps understand your potential at a regional, national, or other intermediate scope.
SOM – Serviceable Obtainable Market
This projects the portion of the SAM you can realistically capture. It factors in your probable market share given competitors, pricing, messaging, budget constraints, and other market dynamics. SOM helps set achievable near- to mid-term targets.
The relationships can be summarized as:
SOM ⊆ SAM ⊆ TAM
Here’s an example from a consumer app perspective:
Imagine you are a product manager for a new fitness app. Here’s how you might determine your TAM, SAM, and SOM:
TAM: The global market of smartphone users potentially interested in using a fitness app. Suppose broader estimates put this global TAM at 1 billion users.
SAM: Your app has limited language support and is only available on iOS. So you can realistically serve English-speaking iOS users, which data suggests is around 300 million users globally.
SOM: Based on competitive analysis and typical category adoption rates, you estimate your app can capture a 10% market share of that SAM over the next 3 years. That translates to a SOM of 30 million users.
Why Market Size Matters
Now that you have quantified your addressable market size using TAM, SAM, and SOM, what should you actually do with those metrics? Here are some of the key ways market size data powers smarter product decisions:
Informs Strategic Product Decisions
- Set realistic short-term goals anchored to your SOM
- Define achievable medium-term objectives based on your SAM
- Frame the longer-term vision leveraging your TAM potential
Guides Product Roadmap Prioritization
- Identify must-have features to capture your SOM
- Map out high-priority enhancements that expand your SAM
- Envision longer-term innovations to fully capitalize on TAM
Focuses on Marketing and Sales Efforts
- Devise targeted campaigns to penetrate defined SOM
- Expand strategies to extend reach within SAM
- Evaluate global opportunities to increase awareness in the broader TAM
Justifies Investments and Budget Decisions
- Make data-driven resource allocation choices based on addressable market estimates
- Secure executive buy-in for investments aligned to SOM and SAM expansion goals
Assesses Growth Opportunities
- Pinpoint sub-segments within defined TAM but outside current SAM
- Formulate approaches to offer products to untapped segments
- Identify new demographics, use cases, and buyer personas in TAM for future growth
What If Your Market is Small? Expanding TAM, SAM, and SOM
Despite best efforts in quantification, some products discover their realistic addressable market potential is smaller than initially hoped. All is not lost though – here are proven strategies to expand your market size even after launch:
Expand Geographically
Enter new regional markets and geographies, adapting products and messaging to increase share of global TAM
Diversify Product Offerings
Identify incremental customer needs to address with new products or features to capture more SAM
Continuous Innovation
Rapidly roll out enhancements fixing pain points and meeting emerging customer needs to stand apart from competitors
Partnerships
Pursue creative partnership opportunities with channel partners, influencers, and adjacent platforms expanding reachable SAM
Customer Education
Invest in educating potential users about product benefits to convert more addressable market into captured SOM
Key Takeaways
To drive home the importance of market sizing, here are some key takeaways for product managers:
Quantifying Market Size is an Essential Product Management Skill
- Getting the market size right is crucial to product-market fit
- TAM, SAM, and SOM provide a tactical framework for assessment
- Markets can be sized top-down and bottom-up using multiple data sources
Market Size Metrics Empower Smart Product Decisions
- Anchor targets and trajectory to SOM for achievable near-term goal-setting
- Expand to SAM coverage before seeking full global TAM
- Let market size data guide priorities and proportional resource allocation
Multiple Growth Levers Available Even if the Market is Small
- An array of proven tactics can expand TAM, SAM, and SOM over time
- Sustainable growth is about both penetrating defined markets and expanding them
Continual Evaluation is Key as Markets Evolve
- As you scale, re-evaluate TAM and fine-tune SAM and SOM projections
- Account for new use cases, buyer needs, and market disruptions
- Pivot when strategic assumptions on the addressable market are invalidated
Understanding The True Market Potential For Your Product
Conclusion
Accurately assessing and optimizing based on addressable market remains one of the most impactful, and challenging, responsibilities for a product manager. Quantifying TAM establishes the broader opportunity while SOM and SAM ground near-term execution in strategic reality. By leveraging these market size metrics to inform planning, innovation, investment, and growth decisions, product managers put themselves in the best position to capitalize on product-market fit. But markets continuously evolve so regular re-evaluation and course correction is key.
With the frameworks and best practices covered here, any product manager can size up their addressable market potential and use those insights to strategically improve product-market fit over time.