Question

Explain the concepts of TAM, SAM, SOM, and how to calculate them?
a. What about TAM, SAM, SOM about to with concerning the start-up business that
you are developing?
b. What is the benefit of knowing the amount of TAM, SAM, and SOM for
prospective entrepreneurs and potential investors

Answer 1

Answer 1

Meaning of TAM: it is a abbreviated form of Total Addressable Market which means that the total Market demand for the product of service in the market. Or we can say that if a business is able to achieve the 100% market coverage then how much revenue it can generate. It helps to determine the maximum amount of revenue that can be generated in the market.

Calculation of TAM

To easily calculate the TAM is to calculate the number of customers in the market multiplied by the average revenue that a customer can generate.

Meaning of SAM: it is an abbreviated form of Serviceable Addressable Market which means that the number of customers in the market to whom the company can easily reach. It is a portion of TAM that a business is servicing.

Calculation of SAM

SAM is calculated by multiplying the No of Customer that a business can reach by average revenue that a customer can generate.

Meaning of SOM: it is an abbreviated form of Serviceable Obtainable Market or we can say Share of Market which means that the actual customer base that a business reach. It is a part of SAM. It helps to get an idea of the amount of revenue that a business can generate.

Calculation of SOM: it is calculated by dividing the revenue from past year by the total revenue of industry's serviceable addressable market from last year.

Answer 2

What about TAM, SAM, SOM about to with concerning the start-up business that you are developing?

By determining the TAM, SAM, SOM one can easily forecast the revenues and expenses for the business that a one is developing so that they can get an idea of whether going for a start up business will be profitable or not. Further one can also know about the current and future prospectus of the growth in that industry based on the total addressable market, which helps to determine their stability in the market.

Also with SAM one can also determine the amount of competition and market scenario.

Answer 3

What is the benefit of knowing the amount of TAM, SAM, and SOM for prospective entrepreneurs and potential investors?

Benefits of knowing the amount of TAM, SAM, SOM for the prospective entrepreneurs and investors are as follows:

· Firstly it helps to determine the potential of business in the market.

· One can easily forecast the revenues, and profitability

· Investors can take their decisions easily that whether there investment can generate good ROI or not which simplifies their decision making.

· It also helps entrepreneurs to determine the course of action or business strategies that they should adopt to make growth in the market.