Market sizing is an important step in understanding the potential size of a market for a startup. One way to conduct market sizing is by using the TAM, SAM, and SOM approach. Here’s a step-by-step guide to using this approach:
- Define the market: Clearly define the market that the startup will operate in. This could include geographic location, customer segments, and product or service offerings.
- Determine the Total Addressable Market (TAM): TAM is the total market demand for a product or service. To determine TAM, research the total size of the market, the number of potential customers, and the total revenue potential.
- Identify the Served Available Market (SAM): SAM is the portion of the TAM that the startup can realistically target. To determine SAM, consider factors such as the startup’s target customer segment, distribution channels, and marketing budget.
- Determine the Share of Market (SOM): SOM is the portion of the SAM that the startup can realistically capture. To determine SOM, consider factors such as the startup’s unique value proposition, competition, and brand awareness.
- Use forecasting techniques: Use forecasting techniques such as trend analysis, historical data analysis, and scenario analysis to estimate the potential size of the market.
- Validate the data: Validate the data by cross-checking it with industry experts or other sources.
- Review and update the data regularly: Market size and dynamics can change over time, so it’s important to review and update the data regularly to ensure that it remains accurate.
By using the TAM, SAM, and SOM approach, you can gain a better understanding of the potential size of the market for your startup and make more informed decisions about your business strategy.