What is Serviceable Available Market (SAM)?
The Serviceable Available Market (SAM) represents the segment of the Total Addressable Market (TAM) that your company can actually target and serve with its products or services.
It factors in the operational reach of the business, including geographical limitations, available sales channels, and specific market segments targeted.
SAM, therefore, offers a more practical and attainable market size estimation, crucial for strategic planning and resource allocation.
Example:
Referring back to the example of the app connecting local organic farmers with consumers, the TAM was previously calculated as ₹90 crore per year.
However, if the startup initially launches the app only in Mumbai and Pune, reaching approximately 30% of the interested consumers and farmers, the SAM would be a subset of the TAM.
Therefore, the SAM in this case would be 30% of the TAM, representing the actual market potential accessible to the startup in its early stages.
The formula to calculate SAM from TAM is:
SAM = TAM x (Percentage of TAM that can be served)
For the example above:
SAM = ₹90 crore x 30% = ₹27 crore
Significance:
SAM calculation is vital for businesses to set pragmatic targets, optimize resource allocation, and plan expansions more effectively.
It allows companies to align their strategies to feasibly address the market opportunity, aiding in achieving their short-term and medium-term objectives.