Business Plan Users
Calculate the TAM (top down), SAM (bottoms up) and SOM of a web site?
How to calculate the TAM (top down), SAM (bottoms up) and SOM, which are required in a business plan ? Is TAM the number of internet users in the world ? SAM the number of users that look at sites within the same category as my site ?
No. If you sold pet food online, your TAM would be the number of internet users who own pets. If your online pet food store only sold food for dogs and cats, then your SAM would be the the total number of internet users who own dogs and cats (vs. the entire universe of pets). Your SOM would be your share of market within the SAM that you calculated.
So, for example, if the total number of internet users is 50M in the U.S. (I’m making up these numbers), your TAM wouldn’t be the 50M as you had suggested. If I am an internet user but don’t have a pet, I wouldn’t be part of your addressable market. Let’s say that one in every ten internet users own a pet. That would make your TAM equal to 5M. Let’s say that your online pet food store only sold food for dogs and cats. If you assume that dogs and cats are the most popular pets that people have and comprise 80% of pet owners, then your SAM would be 4M. Let’s say that your online pet food store has 1M of the SAM, then your SOM would be 25%.
Hope his helps.
Business Plan Financials: Cost of Sales – Part 3 of 9
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