Assumption is the mother of all frustration. Assumption of how many people will buy your product in business when backed by data delivers on that expectation. But when it is wrongly done, it becomes a termite to progression.
Everyday I see businesses make the same mistakes on their sales projections. They assume wrongly who or how big their market and market size is. In business, when you need to start, drive or distribute a product or concept know your TAM, SAM, and SOM (on a lighter note don’t they sound like the name of people?).
TAM or Total Available Market is the total market demand for a product or service. On one hand, as a subset is SAM otherwise called Serviceable Available Market; that is the segment of the TAM targeted by your products and services which is within your geographical and consumer behaviour reach.
On the other hand, SOM or Serviceable Obtainable Market is the portion of SAM that you can capture (that is, an estimate of the portion of revenue within a specific product segment that a company is able to capture. Another way of looking at it is to look at it as an estimate of the market share for a particular product that a company can garner).
The concept of TAM, SAM, SOM -Total Addressable Market, Serviceable Available Market, And Serviceable Obtainable Market is a major concept in marketing and strategic planning.
Let’s use a case study, let’s say that we want to develop an app for the cooking gas/ LPG market. The first thing you want to ask is how many people in units use gas for cooking in Nigeria.
And then you ask for a Gas App project, how many people actually have the purchasing power, need, and have the resources (money and even mobile phone since it’s an app) to use your gas app and can buy gas from it. In a nutshell, we want to see the TAM (Total Addressable Market).
That will be the number of households that exist (and use gas) in Nigeria I believe. So the TAM for gas will be about 43m (yes, the actual number of households that use gas reached 43 million units in 2020 in Nigeria, according to the National Statistical Office). So 43m is your TAM.
Your SAM maybe say 61percent of that (26.3m), the consideration here will be people who use gas and also have purchasing power and a smartphone. While your SOM is how many percent of that SAM you target ( that is how many percent of the 26.3m do you think you can actually reach with your capabilities).
So SOM may be placed at 5% of SAM ( that is 5% of 26.3m which is about 1.3m). All of these are in units (in the case of gas- says cylinder size). You can also get this in Naira if you multiply by amount for that unit.
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TAM, SAM and SOM is a major variable in marketing and strategic partnership. It’s a mental and mathematical tool you must be equipped with before you venture in business.
Practically we see this problem of the wrong assumption of market size when Nigerians and their businesses say that they are targeting 200m Nigerians. This is strategic jargon and nonsensical for most assumptions.
While there are about 200m Nigerians, there’s literally no brand that serves 200m people in Nigeria or to even target them, not even pure water in a sachet or in a bottle (think about it, even 200m Nigerians don’t drink bottled water; some drink only bottled water while some live in areas where they drink lesser water even, from the stream or well).
To put our wrong assumptions of how many Nigerians are actually available for a service, let’s explore two popular things that are part of our lives: phones (smart phones) and bank accounts.
Let’s explore them in relation to 200m Nigerians. There are only 40m smartphones and unique bank accounts in Nigeria. Now that’s your Total Addressable Market (TAM); that’s 40m and not 200m.
Most Nigerians in product development and market projections fool themselves or are outrightly ignorant when it comes to what they sell and the general population. Stop telling yourself and financial projections that there are 200m Nigerians as your market size.
Practically, 80 percent of them can’t afford your service and can only afford food. The rest is 20percent Nigerian (about 40m, which coincidentally correlates with the exact number of active smartphones in use according to NCC and bank accounts according to CBN).
These are even the most optimistic maximum market size and not 200m people. On affordability and purchasing power, it will interest you to know that according to the CBN, Nigerians who have more than N500, 000 in their accounts are just two percent.
98percent of Nigerians are dependent on the remaining 2% of Nigerians, who own 90% bank deposits. Nigerians are poor, we just don’t know how bad yet because of urbanization in a small cluster, because of media, music and our sensibly positive and hope filled outlook to life, thanks to religion and enjoyment.
Having played around TAM, SAM and SOM of various sectors, I have noticed that while not in cases, but more likely, most TAM should start at 40m, then SAM, and SOM become nested subsets of that TAM.
But bear in mind that no matter how big your TAM, SAM and SOM is, as you engage that entire audience or customer base, always know that you are still simply speaking to a single human at any given time!
