Every business that has ever encountered any genuine level of success, from the neighborhood plumber who operates out of his sticker plastered van to the delivery behemoth Amazon, has done at least this one thing right: identified a problem which potential buyers have and offered them a solution.
Why? Money, of course.
Most companies can’t just rely on referrals to grow, so instead have to do some form of outreach to their potential customers, whether it’s marketing or cold outreach like cold calling or emailing potential buyers.
But what if you aren’t being quite as efficient as possible in pursuit of your buyers? What if you’re overextending your reach to buyers you can’t truly service, therefore annoying them? Or worse… what if you aren’t reaching out quite far enough?
Understanding your Total Addressable Market (TAM) and it’s subsets is the first step in prioritizing your buyer pool and bringing your company to new levels of market competitiveness.
What is the Total Addressable Market?
The Total Addressable Market (TAM), also called Total Available Market, is a term that is typically used to reference the revenue opportunity available for a product or service. It’s most often used by companies in the midst of seeking potential investors or preparing to execute on their market strategies.
It’s also a hugely important tool for companies that are developing an outbound program to know exactly WHO their potential buyers are, so they can create a strategic approach to generate interest. The TAM can be used when building out territories for sales reps or assigning named accounts, and can be used by leadership to map out their go-to-market strategy.
Let’s imagine our plumber for a moment. His Total Addressable Market -the buyer pool in need of plumbing services- is going to be every house, apartment, and business with a burst pipe, flooded basement, or any number of rather... unmentionable problems.
Thank God for plumbers, right?
There is no shortage of work to be done on pipes, bathrooms, and sink disposals -as any homeowner certainly knows- so naturally our plumber will achieve an early retirement from all the buyers that have no choice but to come his way. Right?
Not so much.
The TAM is a great market measure to begin with, but quite misleading if you don’t understand it’s subset: the Serviceable Addressable Market.
What is the SAM?
A problem of service brings us to a subset of the TAM. The aptly dubbed, SAM or Serviceable Addressable Market.
The SAM is the portion of buyers inside the TAM whom you can actually provide your service, given your scale, financial resources, and geographic limitations.
The larger your SAM becomes, the more buyers you can provide service to, potentially increasing sales.
Different industries will have more accessible TAM’s than others, making their buyer pools larger, just as well developed companies will have access to a more significant portion of their Total Market than their more limited competitors.
Our neighborhood plumber is limited in multiple categories:
- Scale: He works by himself.
- Financial Resources: Marketing and potential company growth is hindered.
- Geographic limitation: Plumbing is an on-site job, and the nearest few zip codes are likely going to be the extent of his range.
Although a different industry, let’s compare our plumber to the ecommerce, logistics, cloud storage, omni-present behemoth that is Amazon. Little needs to be said of Amazon’s humble beginnings, as we all know the arduous journey the company took to become what it is today, but Amazon services nearly the entire world in some shape or form, with only a handful of exceptions.
Amazon’s SAM is massive because it has positioned itself to be able to service a huge amount of buyers. Its success comes at no surprise. But Amazon’s success isn’t determined in the mere fact it possesses a large Serviceable Addressable Market. That itself means very little in terms of raw sales.
This brings us to the last subset of the TAM.
The Market Share (MS).
What is the MS?
A further subset of the Total Addressable Market we must delve into is the MS, or the Market Share. The Market Share is the percentage of a market accounted for by a specific entity or company. Otherwise, the percentage of the SAM that is currently being serviced by you and your competitors.
Every vendor who services the needs within an industry controls a portion of that market, their own little piece of the market share apple pie, and when all the Market Shares are added up, we naturally visualize the full desert. The SAM.
Everyone uses Amazon because Amazon can service everyone. Also it’s good. Very good. But our plumber has MS hurdles that Amazon has long overcome.
There are lots of plumbers in the neighborhood, each with their own appeal, and each one of them trying to siphon buyers from the other.
The beauty of capitalistic enterprise is that our plumber’s MS can increase, and the battle for the neighborhood SAM is made up in Market shares.
It’s important to recognize the relationship between the MS, the SAM, and the TAM.
The Market Share is a subset of the Serviceable Addressable Market, while the Serviceable Addressable Market is a subset of the Total Addressable Market.
We could go further and analyze the TAM as a subset of the entire World Market, but that would do little more than identify which problems arise the most and are needed serviced by the most numbers of buyers.
While you could never hope to service every varying need for every buyer in the world, you could theoretically service your entire TAM.
I emphasize theoretically.
The TAM and your MS will never fully overlap, unless in the case of the successful monopoly of an industry.
Since monopolies are remarkably challenging to achieve as a rule of nature, and our capitalistic society has practically designed our system to make them illegal, then the largest MS, or an ever-growing MS, is perhaps the best measure of a company’s potential financial success.
Just like Amazon’s.
Know Your Total Addressable Market
The needs of the world’s buyers are practically endless, ever evolving, and hauntingly complex. The effort of this article is not to instruct you in how to identify the vast problems of buyers, nor how to execute on your perceived solutions for them, but rather is to help you understand how to view your market once identified.
Find your Total Addressable Market, identify your Serviceable Addressable Market within it, and then capture the largest Market Share possible. Because like the plumber, pipeline is everything to a growing B2B business.
How can SalesHive help?
We believe that a TAM is an essential foundation of a successful sales development program, which is why we build one for every single client we work with, absolutely free. On top of building out the TAM, we also create a comprehensive sales development playbook unique to each client.
Both of these deliverables can typically cost thousands of dollars, but we firmly believe that our success hinges on the success of our clients, so it’s essential to get the right foundations in place before jumping into outbound.
If you would like to learn more about receiving a FREE TAM and Sales Development Playbook, schedule a time with our Head of Growth to see how we can be your strategic partner for all things outbound.