(Last updated 6th June 2014)
Before you enter the market with your product, you have to keep 3 important questions in mind.
What is the TAM SAM SOM for my product?
Here the official definition:
Tam: Total Available Market
Focus on: Total market / size
Example: Total LED Market
Sam: Served/Serviceable Available Market
Focus on: Your own technology/ services
Example: The Total Living colors LED market (Segment of total LED market)
Som: Serviceable Obtainable Market
Focus on: Which realistic market share can be obtained by myself considering:
competition, trends, expected demand/forecast, countries, my sales/distribution channels and other market influences?)
Example: My realistic goal to sell Living Color Products into the LED market.
(Click on graphic to enlarge):
The situation:
Let's say I am company XYZ who makes LED lighting bulbs for home use.
But I only have the technology to produce the non-dimmable version of LED lighting bulbs.
The TAM
would be the whole worldwide LED lighting market.
(Focus on total LED market)
My SAM
would be the worldwide non-dimmable LED bulbs market.
(Focus on your own technology/ what you can serve within the total LED market)
My SOM
would be the realistic and obtainable market considering:
Competition, trends, demand/ forecast, focus countries and sales channels
(distributors, resellers, direct business etc.) that I can achieve to sell in 2014.
(Focus on your realistic market share that you can obtain considering all market factors within the non-dimmable LED market)
Remark:
The TAM stands for Total Available Market.
Depending on how you look at the LED market - in the above example my TAM can be:
1) The total worldwide LED lighting market (including all LED bulbs, LED streetlights, etc.)
2) The total worldwide LED lighting bulb market (including the dimmable and non-dimmable LED versions). For the TAM you are free to choose one or the other. However, more important is the question on your SAM and SOM. The SAM is always focusing on your own technology, that, what you can serve on the market. SOM reflects the SAM and also considers all market factors that can possibly influence the success of your product.
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Here a deeper explanation to TAM SAM SOM
in terms of OEM/ODM business model:
Example:
I am company XYZ, OEM Manufacturer and supplier entering the LED Living Colors Market:
TAM: From my market research and reports which I have read, I found out that the total number of LED Living Colour Lamps being sold in 2014 in Europe will be approximately 1 Million pieces.
Total Available Market
The TAM Question: What is the Total Achievable Sales Amount of LED Living Colour lamps incorporating all market players together?
SAM: Philips has the highest market share of the LED Living Colour lamps with 800.000 units a year. The remaining 200.000 units are being sold by other brands.
My SAM (Servable Available Market) is 80% of the total market of 1 Million LED Living Colours lamps. The SAM Question: What can I achieve in 2014 in maximum sales?
SOM: My strategy as OEM manufacturer is to focus and work together with the Top Market Player, in this case Philips only. As I am a new supplier to Philips, they agree to test me out and ask me to produce only 200.000 pieces of the 800.000 that they expect to sell in 2014.
The remaining 600.000 units are being produced by their current suppliers.
In this case my SOM (Serviceable and Optainable Market) will be 200.000 pieces (a share of 25%) of the 800.000 pieces from Philips. This SOM is my realistic and reachable target for 2014.
The SOM Question: What can I (as company XYZ) achieve in 2014 selling to Philips?
Questions?
Just contact me on carstenschade@hotmail.com
Question from Nathan:
ReplyDeleteHow would you calculate $ TAM?
Would you use the industry avg unit price, or would you use your avg unit price?
In the case of the iPhone, using the industry average would be misleading because the iphone allowed for the average unit price to increase therefore enlarging the TAM. However, if your solution is 2X the unit price then TAM based on your unit price does not make sense either.
Curious…
Nathan
Answer to Nathan:
Hello Nathan!
1) It does not make sense to calculate the TAM from the Iphone for 1 specific product. The I-Phone is not a market, it is a product. Here you need to calculate the Smart phone market where there is more competition.
2) The Tam is the total amount of money people spend on Smart phones in units sold or $ money, so you would calculate from the industry weighted average unit price.
3) If you want to calculate the money, just mulitply the number of units by the average price.
4) If you are the producer of the I-phone, you can calculate the SAM. Because you have 1 product to service the total smart phone market.
Hope this explanation helps!
Kind regards,
Carsten Schade
Extra Question from Nathan!
ReplyDeleteThanks again for your input. I am almost there. One last round if I may. Let’s use a real example. 200M touchscreen phones worldwide. The average price is 100$. So the touchscreen phone TAM is $20B. Now, I have a high end solution that can serve 100% of these touchscreen phones. So, the SAM in units is 200M touchscreen phones. But, my price is $150. This would put the SAM at 200M * $150 = 30B.
I think the features, region etc… would be taken into account in the SOM calculation.
Thanks again. Nathan
Answer to Nathan:
Hello Nathan!
The first thought with your TAM of $ 20Billion is correct. But, because not all the customers will buy high end products, therefore you don’t serve 100% of the market. If 20% of all customers buy a high end product at $ 150 your SAM is: 200 Million pieces x 20% x $ 150=
$ 6 Billion SAM.
Because not all high end customers buy YOUR product, you can expect to achieve a market share of ca. 50% of the high end market share.
In this case your SOM will be 50% of $ 6 Billion. Your SOM is $ 3 Billion!
Customer Question:
ReplyDeleteHi Carsten,
Thanks for an amazing blog about the TAM/SAM/SOM. I can't believe how much little info there is on the web about this.
I'm trying to determine the TAM SAM SOM for a new search engine which has a mobile aspect. It's really confusing because what we're offering specifically is not being offered so what can a person take into consideration in such a scenario?
Also you calculate TAM/SAM/SOM in units as in potential units sold. What about $ amounts? Is that ok...or in my case is it Search engine users?
Regards,
Mr.....
Answer to Questions:
Hallo Mr. ...!
To answer your questions:
1) When you are talking about a search engine to be used by mobile devices > All mobile internet users are your TAM.
2) Your SAM will be reduced if you only develop software for Windows Mobile users.
Thus the customers for the Iphone and Symbian are excluded in your SAM.
3) For the SOM, you cannot reach all the customers, so you need to be realistic and first figure out your target groups that you can really reach > Like early adopters or business travelers for whom your product has specific value.
For the $ amount you need to take the volume/units and just put a price onto it.
Hope this explanation helps!
Regards,
Carsten
How do i calculate SAM for the semiconductor industry in India
ReplyDeleteCan you recommend any good books on the subject?
ReplyDeleteHi, thanks for this, you have explained this in such a way that I am sure my 4 year old nephew would understand.I am a complete computer geek myself on the verge of approaching various venture capitalists and all this information needs to be in my initial presentation, the funny part is I have the information but had know Idea this is what they were asking for.
ReplyDelete"TAM SAM SOM" is a nice trick for market analysis this gives fast result but calculating over it ma be difficult means getting exact figure about market. LED Lamps Global Mrket Forecast.
ReplyDelete