“Our market has ten-gazillion-million potential customers” may sound impressive, however there is another way to communicate just how how well you know your startup’s market. Consider PAM, TAM, SAM, SOM as a guide to determine the size your market. Below is an easy to understand guide:
Example: Global Healthcare Industry
The total population who have interest in acquiring your product or service.
TAM – Total Available Market
Example: Total U.S. Healthcare Market
This is a quick metric of the revenue opportunity available for a product or service.
SAM – Served Available Market
Example: iOS App that connects Primary Care Physicians to patients
A company’s served available market is the dollar or unit value of its total market opportunity, this is your target market segment.
SOM – Serviceable Obtainable Market
Example: Sell to Primary Care Physicians with iOS devices in U.S.
This is an estimate of what market share can you obtain.
Other good questions to ask when evaluating a market:
Why are your competitors in this market?
What are the trends (regulatory, economic, etc)?
What types of customers are they attracting?
Would I have to change my customer acquisition and/or marketing strategy to enter this market?