Play it again SAM, dancing to the TAM TAM of Finance

Being somewhat of an amateur percussion player myself, I can’t help but smile, when during a business case discussion, I hear somebody ask a question about the TAM. Typically, the question is something like “What TAM are you talking about?”.  This automatically raises the stress level with whomever is presenting the case and you start seeing little beads of sweat forming in the wrinkles on their forehead whilst they are pondering on how to answer this question.  Is there more than 1 TAM, you see them asking themselves frantically.  A TAM TAM (*) perhaps?  Should we be selling percussion instruments?

Product Managers all over the globe dance to the fine rhythms the finance departments produce on their TAM TAM’s

As they have a such an important say concerning the investment levels the business case owner will be able to make, it’s important to understand what this TAM is and why it sometimes leads to Babylonian confusion.

TAM is a financial acronym, short hand for ‘Total Available Market’ or ‘Total Addressable Market’.  So, what is the difference between ‘available’ and ‘addressable’?  Many people believe that when two terms are used, they must mean separate things.

Well according to Wikipedia, they don’t, the terms are completely interchangeable.  Both ‘TAM’s mean the same.

With Wikipedia being available to all of us, why does the confusion still rule at so many board tables when the acronym TAM is used?

What the people asking this question are typically after, is the difference between the total universe and what part of this universe you can address.  Notice the word “address” here, and how it fits nicely in “Total Addressable Market” but has nothing to do with it?

The right financial term to address the part of the market you can reach or serve, is the ‘Serviceable Available Market’ (or ’SAM’).  This the part of the TAM you can reach with your sales channels and is per definition smaller than your total addressable market.

The people asking about the TAM will most likely also want to learn about your SOM or your ‘Share of Market’, also known as the ‘Serviceable Obtainable Market’.  This the part of the ‘Serviceable Available Market’ that is purchasing your goods or is realistically expected to buy your product.  Still makes sense? Or am I losing your attention here?

Let’s zoom out and try the music analogy we started with to clarify things a little further.  If you’re into visiting music concerts, your TAM would be all the music concerts that take place.  If you’re only in to symphonic concerts where the Tam Tam is used, then the total of these concerts would be your SAM.  The ones you’ve visited or are planning to visit would be your SOM.  When you get the hang of it, it’s rather easy, isn’t it?

So why is all this important, well if you’re pitching your business plan to the financial community or your board, the TAM, SAM and SOM will probably be some of the most important numbers they’re after.  Making the mistake of stating you are aiming for a 1 percent market share of your TAM will not only raise a weary smile or two, it will make your financial prognosis complete nonsense in the eyes of investors.  You need to understand very well what part of the TAM you can service with your available sales channels (your SAM) and calculate your goal market share (SOM) against this number.

So, if you’re ever in a meeting where people ask you what’s the difference between your Total Addressable Market and your Total Available Market, use the famous words Humphrey Bogart used in my all-time favourite movie ‘Casablanca’: “Play it again SAM”.

Want to learn more on how to calculate your TAM or have a chat about what a fine instrument the Tam Tam is, please don’t hesitate to contact me on www.WidePeak.com

(*) A Tam Tam is a large chau gong (a type of suspended Chinese gong) that is as a musical instrument part of the symphony orchestra

 

References:

https://en.wikipedia.org/wiki/Gong#Chau_gong_.28Tam-tam.29

https://en.wikipedia.org/wiki/Total_addressable_market