In our earlier post, ‘Understanding Total Addressable Market (TAM) and its role in assessing your market size and growth potential’, we explored the significance of TAM was a fundamental metric for assessing market size and potential growth of both businesses and investment. Now, let’s take a deep dive into understanding what Serviceable Addressable Market (SAM) is and its pivotal role in guiding sales and marketing strategies.
While TAM offers a panoramic view of the entire market landscape, SAM zooms in on the subset that aligns with a company’s capabilities and strategic objectives. Let’s illustrate using a HR technology company launching into the Australian market.
Our Total Addressable Market for this Australian HR tech company was calculated at $600 million, as a total market opportunity in Australia. Upon assessing the capabilities of the HR company’s product and business setup, our TAM recommendation showed that the business should be specifically targeting small and medium-sized enterprises (SMEs) with a more tailored solution. This recommendation drives our SAM calculation, as we take a more precise look at the SME segment in Australia.
Precision Targeting: For our HR tech company, SAM would involve identifying SMEs within Australia that are actively seeking to streamline their HR processes and are open to adopting cloud-based solutions. By focusing their sales and marketing efforts on this specific segment, they can tailor their messaging and features to resonate with the unique needs of SMEs in the Australian market.
Resource optimisation: Understanding SAM allows our HR tech company to allocate resources effectively, focusing on markets where they have a competitive advantage and the highest probability of success. Instead of targeting all businesses in Australia, they can concentrate their efforts on SMEs that currently have no online HR solution, to optimise their ROI and accelerate growth.
Strategic planning: SAM serves as a strategic compass for our HR tech company, guiding decision-making processes and resource allocation. By understanding the size and characteristics of their SAM, they can develop targeted marketing campaigns, refine their product roadmap, and prioritise feature development to better service their target audience.
Define your Ideal Customer Profile (ICP): For our HR tech company, the ICP might include SMEs with 20-199 employees, located in Australia. Giving us around 50,000 businesses.
Segment the market: Segment the Australian market based on company size, industry verticals, and geographic location. Focus on industries with high growth potential and a propensity for adopting cloud-based HR solutions.
Multiply segment by average revenue per customer: Once you know the segment size of your SAM you can then multiply this number by the annual cost of subscription to your product, giving you a total SAM.
Example:
SME: segment numbers are 50,000 customers
SME: average revenue per customer is $10,000 ARR
SAM for SME market = $10,000 (ARR) x 50,000 = $500 million
TAM for overall Australian market = SME market + Enterprise market (5,000 businesses x $50,000 ARR) = $750 million.
Firmable is a great localised database platform that allows you to build out your ideal customer profile, segment the market, and calculate your TAM, SAM, and SOM.
Example of how you can find this data in Firmable:
In Firmable, you can search on employee size to show all SME companies in Australia. You can then narrow this search to segment the data by different locations, industries or even by technographics on existing HR software used or not used in Firmable.
Firmable will help you segment the market, calculate market penetration, and help you calculate SAM for each of your segments.
Data-driven insights: Leverage market research reports, industry studies, and customer surveys to gather insights about the Australian SME market and their HR technology needs. Analyse demographic data, industry trends, and competitive landscape to refine your SAM calculation.
Continue iteration: SAM is not static and requires continues monitoring and adjustment based on market dynamics, customer feedback and internal capabilities. Stay agile and adaptable, refining your SAM calculation as you gather more data and insights from the market.
Cross-functional collaboration: Foster collaboration between sales, marketing, product development and customer success teams to ensure alignment in targeting and serving the SAM. Share insights, feedback and learnings across departments to optimise strategies and maximise impact.
In conclusion, understanding your Serviceable Addressable Market (SAM) is essential for strategic decision-making and sustainable growth. By focusing on the subset of TAM that aligns with your capabilities and objectives, you can target your efforts, resources, and strategies for maximum impact. Whether you are an HR tech company in Australia or a global enterprise, embracing SAM as your compass will guide you towards unparalleled success in navigating the complexities of the market landscape.
Sign up for a 14 day free trial of Firmable, and start calculating your Serviceable Addressable market today.
Continue your market exploration: Stay tuned for Part 3: Navigation your Serviceable Obtainable Market (SOM) – Unlocking realistic growth potential. Coming soon.
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