Why Tam, Sam and Som are Important for Valuation?

What Are Tam, Sam, and Som?

Many think the question "what is tam, sam som" is unimportant. The questions "What is the tam?", "What is the sam?" and "What is the som?" are a few of the most relevant things you can imagine when you deal with business valuation. In this blog post, we will explain what they are. In this blog post, we will examine the issue of what is tam, sam som.

Read on to learn all about it!   

TAM SAM SOM — Total Addressable Market, Serviceable Addressable Market, and Serviceable Obtainable Market, respectively — were initially taken from the sales world. Still, they were quickly adopted in the investment and valuation world.

Total Addressable Market - TAM

TAM stands for Total Addressable Market (sometimes Total Available Market). TAM represents the maximum market size or potential revenue a business can generate with its product or service.

TAM does not consider market-narrowing constraints, such as competition, geographical boundaries, or marketing budgets. 

Serviceable Addressable Market - SAM

SAM, which stands for Serviceable Addressable Market (sometimes Serviceable Available Market), is a subset of the Total Addressable Market, defined by the demographics of your product niche. The Serviceable Addressable Market shows how big of a market segment exists your product and business model can serve.

A basic example will help highlight the difference here. For an entrepreneur hoping to open a donut shop, their TAM would be everyone who has an interest in visiting a shop that sells baked goods or sweet treats. The SAM for this company is illustrated by everyone wanting donuts.

Serviceable Obtainable Market - SOM

SOM stands for Serviceable Obtainable Market, which delivers a realistic glance at what market share a company can reasonably grab in the next few years - 3 – 5 years. To calculate the SOM, businesses need to account for competition, marketing strategies, pricing plans, and many other variables.

How Do the TAM, SAM, and SOM Affect the Firm's Value?

In principle, the larger they are, the higher the firm's value. 

If the TAM is huge - the potential value is enormous - and venture capital - VC probably be interested in investing in the firm. 

If the SAM is enormous, the potential value is also tremendous.

Similar - to the SAM.

It is said about this - you should fish where there are fish.

But beyond that, several other parameters need to be examined - the number of players in the market: if these three parameters are high, but the market is saturated with many players - it is not certain that it will be interesting. The ability of the firm to compete successfully in the market should be examined.

On the other hand - if one of them is not big, but there are not many players in the market - we may have an exciting investment.

Infographic: Tam, Sam, and Som

(If you like - you can use it, but you should add a link to Equitest's site)

Conclusion

In this article, we have discussed Why Tam, Sam and Som are Important for Valuation. Suppose you look for a straightforward way to evaluate your business, manage your cap table, or create a pitch deck. In that case, you can try our intuitive ai based business valuation software or our business valuation calculator, or you can contact us for free advice or schedule a demo.