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Market Potential

The TAM-SAM-SOM framework is good to understand and use if you need to describe your market potential. You would like to provide this analysis to show your revenue potential and to put your future revenue projections into perspective.

Definition

See an easy explanation of the framework at this blog, over at businessplanshop, and some best practice on how to calculate them are done by Brandon Hickie.

  • TAM: Total Addressable Market: total revenue spent in a specific market, i.e. refrigerators.
  • SAM: Serviceable Addressable Market: the segment of TAM that you can geographically reach with your product and that needs your type of product.
  • SOM: Share Of Market: the part of the SAM that you think you can get versus your competition.

Example of a brief Market Potential description by AppDynamics

This 2017 Forbes Article by Peter Cohen cites AppDynamic’s market potential as an example:

“AppDynamics is going after a $12 billion market. The company believes that its “application intelligence software platform replaces legacy products across various well-established categories of IT spending.” Gartner, estimated that the IT operations market in 2016 would be $23 billion and the business intelligence and analytics market would reach $17.1 billion — resulting in a total addressable market (TAM) of $40.1 billion. AppDynamics targets a segment of that TAM —  global companies with greater than $50 million in annual revenue in 2015 — totaling $12 billion, according to its prospectus.”

 

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