SAM stands for Serviceable Available Market and refers to the portion of the overall market that a start-up can, in principle, serve with its current product, business model and range of services. This metric therefore describes the market potential that a company can actually tap into.
The analysis helps start-ups to identify relevant target groups, assess market opportunities realistically and tailor their marketing and sales strategies accordingly.
What factors influence the SAM?
The addressable market is smaller than the total theoretical market, as certain constraints are taken into account. These include, for example:
- Geographical markets: In which countries or regions is the product available?
- Product features and benefits: What needs does this service meet?
- Sectors and target groups: Which companies or customers are being targeted?
- Technical requirements: What systems or technologies are required to use this?
- Legal framework: What legal or regulatory restrictions are in place?
- Sales and business model: Which customers can, in principle, be served by the existing range of services?
These criteria help to narrow down the addressable market and to assess the existing market potential in a transparent manner.
What is the difference between TAM, SAM and SOM?
These three key figures are used in market size analysis and differ in terms of which part of the market they focus on.
| Key figure | Meaning |
|---|---|
| TAM (Total Addressable Market) | Total theoretical market potential for a product or service |
| SAM (Serviceable Available Market) | The part of the overall market that a company can, in principle, serve with its products or services |
| SOM (Serviceable Obtainable Market) | The market share that a company can realistically gain within a given period |
Whilst the TAM describes the total market potential, the serviceable market takes into account the company’s capabilities. The SOM also factors in elements such as competition, available resources and realistic market shares.
Example: How can the addressable market be determined?
A start-up is developing a digital accounting solution for small businesses.
The global market for accounting software constitutes the total addressable market (TAM). As the software is initially only available to small businesses in Germany, the addressable market comprises solely this market segment, provided that the product meets its requirements.
The SOM then describes the market share that the start-up can realistically gain, for example, over the next three years.
This example shows how a specific market potential for one’s own offering can be identified from a large overall market.
How is the SAM calculated?
A commonly used method is based on the number of potential customers and the expected turnover per customer.
SAM = Number of potential customers in the addressable market × average annual turnover per customer
Let us assume that a start-up’s software can, in principle, serve 10,000 companies. With an expected annual turnover of 500 euros per company, this results in a market potential of 5 million euros per year.
To ensure their calculations are as realistic as possible, start-ups can draw on various data sources:
- Industry statistics and market research reports
- Businesses and customers
- Analyses of comparable companies
- Initial sales figures and feedback from the sales team
It is important to set out the underlying assumptions transparently and to review them regularly.
Why is market analysis important for start-ups?
Analysing the addressable market helps start-ups make key strategic decisions. It helps them assess market potential, identify suitable customers and allocate resources effectively.
Furthermore, start-ups can prioritise geographical markets and sectors, develop growth strategies and clearly demonstrate the potential of their business model to investors.
You can find further practical advice in the innoWerft article on Market strategy and market valuation for start-ups.
What mistakes should start-ups avoid?
A common mistake is to define the addressable market too broadly. Not all potential customers can actually be served by the current product.
Start-ups should therefore test their assumptions against verifiable data and clearly define their target audience. Unrealistic revenue assumptions can also lead to an overestimation of market potential.
Furthermore, the addressable market is not a fixed quantity. It can change as a result of new product features, additional target groups, further sales channels or expansion into other countries.
How can innoWerft help with this?
innoWerft helps founders to narrow down their target markets and customer base, and to critically assess market potential. Through coaching and feedback, start-ups can refine their market analysis and present the findings for their business planning and discussions with investors.
Frequently Asked Questions about the Serviceable Available Market
What does SAM mean in German?
The abbreviation stands for ‘Serviceable Available Market’ and can be translated as the ‘serviceable’ or ‘addressable’ market. It refers to the part of the overall market that a company can, in principle, serve with its current product range.
Why are TAM and SAM different?
The TAM describes the total theoretical market potential. The addressable market, on the other hand, takes into account constraints relating to product range, target groups, geographical markets and business model.
What data is required for the calculation?
Of particular importance are the number of potential customers, the relevant market segment and the expected turnover per customer. Industry statistics, market research reports and the company’s own sales data help to verify these assumptions.
Can the addressable market change?
Yes. Market potential may increase or decrease as a result of new products, additional target groups, changes in the operating environment or expansion into further regions.
innoWerft is an early-stage investor and accelerator based in Walldorf, supporting start-ups before or shortly after they are founded by providing capital, coaching and access to a network of investors and businesses to foster sustainable growth.
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