LetsUnbox TAM - Beyond the basics
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Beyond Basics: Mastering the Methodology Behind TAM, SAM, and SOM
In our post on TAM (playfully called The 3 Idiots), we explored the basics of how to size up the appetite of the market for your new product:
TAM (Total Addressable Market)
SAM (Serviceable Available Market), and
SOM (Serviceable Obtainable Market).
Using examples like online yoga, Amul, and mid-market luxury fashion, we learnt how these metrics help founders and investors size up opportunities. However, arriving at realistic numbers isn’t as straightforward as chucking arrows at a dartboard. How do you actually arrive at TAM, SAM, and SOM? And more importantly, What happens when the ground shifts beneath you?
Let’s dive deeper into methodology, using real-world examples—this time with a twist. How do market trends and inflection points reshape our TAM, SAM, and SOM calculations.
1. TAM: Start Big but Stay Grounded
TAM is your dream scenario, but calculating it requires discipline. Start with either:
Top-down approaches, like using industry reports, population data, or macroeconomic trends.
Bottom-up models, where you build from real data—think units sold, average price points, and customer demographics.
Example: Online Yoga App
If your yoga app targets India, start with:
600 million internet users as the base.
Narrow down to 20% of users interested in fitness (120 million).
Your TAM = 120 million * ₹500/month * 12 months = ₹720 billion annually. Nice? You might wonder what is ₹500/month? It could be higher, based on your user demographics.
But wait, here’s the catch: TAM is not static. After COVID, behavioral changes expanded TAM as more people embraced online fitness. Could you have predicted (and supported) this? Perhaps not. Understanding inflection points like global pandemics or tracking new technologies is key to spotting opportunities early. Question one might ask is how do we do this. That’s the essence of staying plugged in to market feedback, and observing macro trends.
Inflection Insight: What will AI-powered fitness tool do to your TAM? Calculating TAM isn’t just a one-time exercise—it evolves with market trends. Does it expand ot contract the TAM?
2. SAM: The Realistic Slice
SAM takes TAM and trims it down to what’s actionable. This requires crystal-clear clarity on your niche :
Your geographic focus.
Customer demographics.
Operational constraints (e.g., pricing, supply chain, or technology).
Lets take an example: Amul (our favorite case study!)
Amul’s SAM for ice cream was initially limited to urban areas with cold storage facilities. As India’s infrastructure improved, SAM grew to semi-urban and rural regions. Today, Amul segments SAM further by targeting premium customers with luxe ice cream flavors like Jamaican Toto.
3. SOM: Your Starting Point
SOM is the realistic share you can achieve in the near term. Think of it as a reality check based on:
Competition.
Marketing reach.
Current resources.
Example: Mid-Market Luxury
For an emerging mid-market luxury brand, its SOM in 2018 might have been a modest share of metro city customers. But by 2024, a 150% growth in Instagram users and better Tier II city connectivity (thanks to Jio) expanded SOM to a much broader demographic. By understanding SOM dynamics, brands could set achievable goals while riding broader market trends.
The Role of Social Media in the life of TAM, SAM and SOM
Social media is more than just a marketing channel—it actively shapes TAM, SAM, and SOM by influencing customer behavior and creating new opportunities.
I did a detailed study on how social media played the influencing role in the US Elections of 2024. (Refer to the post: LetsUnBox US Elections: MasterStroke or a Stroke of Luck)
If we were to take the same example, and apply the world of market sizing, this is what the definitions would look like:
TAM = The total number of voters with social media access.
SAM = Voters engaged in election-related discussions online.
SOM = Voters you can influence based on targeted ads and engagement tools.
For businesses, the lesson is clear: platforms like Instagram or TikTok can shift your SAM/SOM dramatically based on user behavior. For instance, the rise of Instagram influencers helped drive mid-market luxury in India, while TikTok’s algorithmic discovery reshaped customer acquisition for D2C brands globally.
Evolving with Inflection Points
Let’s connect the dots: inflection points—regulatory shifts around policies, and opening up of markets; tech breakthroughs like AI, or social trends—reshape TAM, SAM, and SOM constantly. Whether it’s COVID-19’s impact on online fitness or Jio’s influence on mid-market fashion, founders must remain flexible. Thats the agility you bring to your business. This is a basis of entrepreneurship.
As a founder, how do we stay abreast? 3 Key takeaways;
Revisit TAM/SAM/SOM regularly—markets shift quickly.
Watch for inflection points in your industry (e.g., AI, 5G, or changing consumer habits).
Use tools like customer segmentation and competitor analysis to refine SOM as you scale.
How do we make this practical? Here’s a Step-by-Step Framework:
Pro Tip: Always consider the impact of trends. For instance, if you’re an online yoga startup, trends like AI fitness trainers or social media-driven wellness challenges could expand your SOM over time.
When TSHTF. (Hey, did you just look this up?) Does every day feels like a new day?
While as a founder I don’t believe in TSHTF, it is always good to be prepared for market shifts, and macro changes that could impact the business. Is it a macro change or is it just acceptance of market leadership and the inability to respond to swift technological and market shifts?
If you have fallen out of the habit of listening to your market, it inevitably follows like the night follows the day, that you are not able to adjust to market changes.
Take the example of Blackberry. I am sure many of us have used the BB and sworn by it being the handheld for enterprise usage
What went wrong? Blackberry assumed its TAM included all smartphone users but failed to adapt to consumer demands for touchscreens and app ecosystems. It misread the shift in customer behavior, leading to a steep decline in market share.
Result: Blackberry went from market leader to a minor player, ultimately exiting the smartphone business.
Lesson Learnt: Never make assumptions. TAM assumptions can change quickly with technology and consumer preferences.
Final Thoughts: Dream Big, Start Small
Understanding TAM, SAM, and SOM is not just about crunching numbers—it’s about staying agile in a changing world. Whether you’re selling ice cream, yoga classes, or mid-market luxury, your success depends on balancing vision with execution.
TAM is your dream, SAM is your plan, and SOM is your starting point. The magic happens when you can adapt these numbers as the market evolves.
What’s next? Share your experiences with TAM, SAM, or SOM in the comments. Let’s UnBox more insights together—your stories could inspire the next big idea!
Have a great Thanksgiving week!
Team LetsUnBox.