On this episode of Dear Strategy, we answer the following question…
“Thank you for the 5-part series that explained TAM/SAM/SOM back in April. Once I’ve decided what those are for my company, how do I then figure out how big any of those are in terms of revenue? What sources might I go to in order to figure out how big my market is?”
This week, it’s back to a traditional-style question and, in this case, we have a follow-up question from the 5-part series that we produced back in April 2019 about understanding your target market.
The foundation for this question is rooted in the marketing alphabet soup that is lovingly referred to as TAM, SAM, and SOM. Rather than repeat what those abbreviations stand for, I’ll refer you back to Part 2 of that 5-part series, which, at least I hope, explains the whole thing rather neatly.
The key takeaway going into this post is that TAM, SAM, and SOM collectively represent a subtractive way of analyzing your targeted markets; starting with the total available market and breaking that down into the portion of the market that you ultimately think you can obtain. It’s all fairly straightforward once you get past the strange abbreviations. But what isn’t so straightforward is how one should go about the business of sizing up these different market levels; and that’s exactly what we’re being asked to address in this post.
As you might imagine, there are any number of different data sources that you can tap into to get information about a given market. And, as you might also imagine, none of these sources are going to be particularly accurate down to a specific product level. However, in an attempt to point your nose in some direction that might be useful, I’m going to break down the most common of these sources using the same methodology that we use to analysis strategic data. That is, by industry, market, and business data.
In our definition, industry data includes any information derived from the overall industry space that a given company participates in. More specifically, industries are defined by the common spaces in which similar types of companies supply products and services. Oil & Gas, Wind Energy, Food & Beverage, and Petrochemical are all examples of these “industry” spaces.
With this as a backdrop, industry resources are some of the most common areas where one can find market-level data – the idea being that industries want to help their member companies define which groupings of customers they should be going after. The most common forms of industry data include 3rd party subscription services, industry association data, and publicly available government-based data. Many large companies that I work with have access to most, if not all, of these resources at a corporate level; although this isn’t always known throughout all levels of those organizations. So it’s definitely worth asking some questions to see if your particular company may already be subscribed to some of these infinitely valuable resources.
Another source of data that I would put into the “industry” category is any information that comes from performing good old-fashioned competitive analysis. Especially if you are competing in an arena filled with publicly-traded companies, you’ll be surprised at how much data can be extrapolated by adding up the performance data from all of your closest competitors, and then using that information to derive the size of the markets that you are all collectively going after.
Since market data is what you’re after, what better place to get it than from the market itself! In this case, we’re talking about going directly to your customers to understand their respective demand levels, and adding all of that up to derive some reasonable estimates of how large each of your targeted markets might be. Of course, doing this will be an absolutely daunting task unless your market is made up of several very large customers (as you might see in some B2B spaces). So, for the most part, the best you can hope to achieve by going to your customers is some level of validation of what you’ve already learned through your industry resources. Still, customers have a wealth of information, so accessing that information in whatever way you can will only serve to help your cause.
More relevant to the market side of the equation will be any data that you can obtain from your distributor or retail partners. A large part of their job is to gain access to markets on your behalf. As a result, many of these companies spend a lot of time and money on compiling and analyzing their customer data so they can access these markets more effectively. Now, whether these companies will be willing to share this data with their suppliers is another story altogether, but it certainly doesn’t hurt to ask and to ultimately utilize whatever information they are willing to provide.
Business data includes whatever information you can extrapolate about your markets based on your company’s own performance. Usually, this will include some estimate of your overall market size based on your company’s market share and revenue for any given product line. The problem here, of course, is that this information tends to contain a bit of a circular reference, since you probably calculated your market share based on market sizing data that you obtained in one of the other two categories that I mentioned above. But, still, it’s always a good checkpoint to triangulate your industry, market, and business data in whatever way you can.
No matter which source you use to obtain market sizing data, remember that this exercise is never going to be an exact science. The best you can hope for is an educated estimate based on whatever resources you have readily available to you.
You also need to keep in mind that any data you obtain will still need to be bound by whatever it is that you are actually trying to analyze. For example, if you are trying to find information on the size of your TAM (Total Available Market), you have to determine what products your TAM is ultimately going to be defined by. Let’s say, for example, that my company is a manufacturer of electrical outlets, and I know that we only want to sell 120V North American style outlets. In that case my TAM will be limited to those customers that will only ever buy that range of products. However, if I think global expansion is in my future, then I might want to define my TAM to include both 120V and 240V outlets because that is the total market that I may ultimately want to go after some time in the future.
All of this to say that getting at the data within your TAM, SAM, and SOM can certainly be an artform. But luckily, it is an artform that can be a whole lot of fun to learn, master, and utilize. So definitely don’t be afraid of it. Just start with some of the resources that I listed above and jump right in. The good news is that there is no absolute right way to go about it. And the only absolute wrong way is to not go about it at all…
Listen to the podcast episode
Dear Strategy: Episode 103
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Bob Caporale is the founder of Strategy Generation Company, the author of Creative Strategy Generation and the host of the Dear Strategy podcast. You can learn more about his work by visiting bobcaporale.com.