TAM as a market sizing metric is critical in forecasting future growth, fundraising and planning for product and geography diversification. Most importantly, it is a calculation that investors turn to as they assess your company’s potential growth trajectory and overall value proposition.
See More: What is TAM?
Assessing a deal: How investors use TAM
A business can leverage a TAM estimation to achieve a number of goals: to maximize their customer segmentation strategy, build targeted sales and marketing campaigns, test out a new product or disrupt a new market. It also serves as a starting point for your go-to-market strategy. While investors consider a number of factors when assessing deals, TAM analyses are of the utmost importance to gauge viability, future scale and maximum valuation.
But first, an investor must be certain that their investment is a worthwhile one and indeed scalable. In addition to TAM, SOM (Serviceable Obtainable Market) and SAM (Serviceable Available Market) can provide much needed de-risking insight by delving into the various subsets of a market.
SAM is the target addressable market that is served by a company’s offerings while SOM is a percentage of the SAM that can be realistically reached within that industry. While these calculations require significant research, they are critical as they provide subset data which largely inform the overall TAM. By demonstrating (through calculations) that a local market can be infiltrated successfully while minimizing risk, the investor has confidence that the business is a stro...