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The Importance of TAM, SAM, and SOM in Your Business Plan

Going into business for a new niche of products or even an existing niche requires a lot of research. Most entrepreneurs make the mistake of starting production without doing market research. This can be devastating, especially if your product sells out and you don’t have enough product to fill orders.

A wide range of market research is imperative to your business’s success and a good business plan must include Total Available Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market SOM information.

The TAM, SAM, and SOM of your product can be measured in units and must be calculated in increments. These increments should last a short period of time such as a tax quarter or a month. If you’re interested in sharing your business plan with investors or other potential partners it is important to include TAM, SAM, and SOM so that they can see the entirety of your business model as it compares to the market.

Business Plan

Having a business plan is a must when it comes to running a successful business. Your business plan should include a financial plan including manufacturing costs versus resale costs, your business strategy, and marketing information. It is important to include production cost information as well. Before finalizing your business plan make an attempt at lowering your manufacturing costs to make your business more profitable. For instance, if your producing electronics and your product is in need of System On Modules (SOM), there are monetary advantages of production-ready SOMs and buying SOMs in bulk versus just buying pieces. Ensure that you find the best possible prices for your inventory and production costs.

TAM

The TAM for your business should include information about your product and how it is marketable worldwide. Addressing this information will allow your investors to see the demand for your product and the potential for international growth. The TAM of your market can also give you an idea of the size of your product niche as well as the demand for the product or service across the globe.

SAM

The SAM information should include the total sales for all vendors selling your product in the sales district you’d like to distribute to. This information is important to show how big the niche market is for your product and it can determine projected sales as well. If your product isn’t doing well in one area, it may be profitable to test out another sales district to see if your product is marketable there. Using market research like focus groups or even phone surveys can give you an idea of where to sell or what type of market is in your area of focus.

SOM

The SOM of your product should include realistic numbers of how your company can meet a total sales volume. Production can be costly and it is important for your investors to know what it would cost to get your business through a tax quarter or even just the first-month successfully.

When it comes to your business, you want to ensure that you’ve got the best possible profit margins and are capable of taking on production for your product’s market niche. In terms of strategy, your partners will want to know if you have enough product to meet the demands of your sales district. Including all of the TAM, SAM and SOM information for your niche of products or product will give your partners a better idea of your strategic plans and marketability. Once you’ve brought all your costs down to the best prices you can find and have a solid plan backed by data finalize your business plan and begin searching for an investor or begin production!

Jennifer Holland

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