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Estimate Market Potential – Market Analysis Tool

The potential market will reflect your vision and help you build the strategic planning process. There is no investor who wants to invest in a company having no concept of the target market they are serving or going to serve. In fact, if a company’s potential market is too small, it will limit its chances to attract investment.

 

TAM SAM SOM is one of the tools that will help you visualize the big picture of your business story relatively in three steps:

Source: Dear Strategy

 

  • TAM – total addressable market or total available market:

Your TAM will differ depending on whether your focus is on the global or local market. For example, if your business offers tours in Vietnam for Vietnamese people, your TAM is the total market demand of Vietnamese people for tourism services and tours in Vietnam.

 

  • SAM – Serviceable Available Market

When you start up a business with limited resources, in 2-3 years’ time, you can only serve the Northern market. SAM will help you limit the boundary of the service market in a more realistic way.

 

  • SOM – Serviceable Obtainable Market

If you’re the only one in the market, SOM can be SAM. However, with competitive markets, SOM must be calculated meticulously with the realistic percentage of your serviceable addressable market that you can capture.

 

SOM is a decisive factor at the present time as it reflects your competence and capability to dominate the potential market. While SAM reflects the competitiveness of the realistic market, TAM reflects the vision and potential of your future service.

 

Calculations for Estimating Market Share

Another method to help you estimate market potential is knowing the average parameters you have. Market Potential = A x B x C

Where:

A: Total number of potential consumers

B: Average annual consumption

C: Average selling price

 

For example, you are focusing on kids’ household appliances in Hanoi. The number of newborn babies in Hanoi annually is 120,000 and expenses for children are 350,000. Hanoi market potential = 120000 x 350000 x 12 = 504 billion.

 

You’re anticipating that your revenue per month can reach 1,2 billion which means the anticipated portion of the market they can reasonably expect to capture will be: 1.2 x 12/504000000000 = 3% of the market share.

 

Synthesize analysis and reports

This is an especially important step when you want to do business in specific markets while being unable to carry out expensive market analysis.

 

Take this for an example. You want to develop entertainment and healthcare services for the elderly in big cities, you certainly need to synthesize population by age to know TAM. After that, based on your observation of each group of retired elderly’ income, you can estimate affordability for your service and limit the boundary of the service market. Finally, research on the number of elderly in one’s household that can afford a service like that in your living area. Whether these synthetical numbers are updated or not, you will be able to visualize fundamentally how to approach your potential market.

 

Author: Nguyen Dang Tuan Minh. Manager & Co-founder of KisStartup

Source: Tia Sang

 

For further reading, visit: https://plantsforhumanhealth.ncsu.edu/extension/marketready/pdfs-ppt/business_development_files/PDF/estimating_market_potential.pdf

For Vietnamese article, please visit: https://www.kisstartup.com/vi/cong-cu-uoc-luong-quy-mo-thi-truong

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