Sharpening Your SaaS Strategy: Mastering TAM, SAM, SOM

Before we dive into TAM SAM SOM.

The SaaS industry has had a reality check over these last two years… and that’s shown in the violent correction we had in valuation multiples post June 23’ [1]. (Oh, returning to the highs of 2020 would be a fine thing, right?) 

Investor capital was plentiful, and revenue teams enjoyed larger budgets and more resources.  This meant these teams could afford to build go-to-market (GTM) motions that targeted their entire Total Addressable Market (TAM).

Living in the leaner times of today makes that old approach impractical. So what are we as Revenue leaders to do?

Only dedicate resources to the GTM motions that bring in their best customers.

This is where mastering your understanding of your TAM, SAM, SOM, and ICP comes into play (And look at that, you’re already reading an article on that exact topic. How handy)

So what are TAM, SAM, SOM, and ICP?

SaaS entrepreneurs are used to wrestling with the challenge of understanding their market size. Understanding your TAM, SAM, and SOM can be the key to moving from just surviving to thriving.

TAM (Total Addressable Market):

This is the total market demand for a product or service, assuming unlimited resources and zero competition. It represents the maximum revenue potential if the product could achieve 100% market share.

SAM (Serviceable Available Market):

A subset of TAM, SAM represents the segment of the market that your product or service can serve, considering your current business model and geographical reach.

SOM (Serviceable Obtainable Market):

This is the portion of SAM that you can realistically capture, given your current resources, competition, and market conditions.

ICP (Ideal Customer Profile):

ICP defines the characteristics of the customers who would benefit most from your product or service and are most likely to purchase it. This includes demographics, firmographics, pain points, and buying behaviors.

For a SaaS company, nailing down your SOM is not just about knowing everyone who might use software (TAM) or who your software is perfect for (SAM) –  it’s about uncovering the group that’s most likely to fall in love with your product because it meets their specific needs perfectly (SOM).

What if we compare a SaaS company with a festival with lots of bakeries to choose from to exemplify TAM, SAM, SOM?

TAM: This is everyone who loves baked goods—the entire festival crowd that could potentially try your SaaS product.

SAM: This narrows down to those who specifically love bread.

SOM: This is the niche group that loves gluten-free bread. These are the bread lovers you can realistically win over with your unique offerings.

Just like a bakery that specializes in gluten-free goodies would target gluten-sensitive or health-conscious customers, a SaaS company needs to find and focus on the exact market segment that will get the most out of their product.

Why Should GTM Teams Care About Narrowing Down from TAM to Find Their SOM & ICP?

Many SaaS companies approach their go-to-market strategies as if they’re the center of the universe. This mindset can lead to poor judgment, causing GTM leaders to skip proper analysis, research, and strategy. 

It’s essential to narrow your focus and target only the specific segments of the market that are most likely to find value in your product. By identifying and concentrating on these key prospects, you can ensure your marketing and sales efforts are more effective and efficient, leading to better results.

In hindsight, you can’t go from your TAM to your ICP without thinking of your whole funnel.

Narrowing down to your SOM and ICP helps you concentrate your efforts on the most promising targets, ensuring you spend your marketing and sales resources wisely. 

The biggest benefits? Knowledge and precision.

When you pick your SOM, you know exactly where to find them, how to speak to them, how to serve their needs. You get really specific and you find the substance to communicate with your SOM in a way that’s more compelling.

GTM teams with the right knowledge can target and connect with the customers that will provide them sustainable growth. This clarity provides a better understanding of the market landscape, guiding efforts in the right direction.

What Are the Consequences of Not Identifying Your ICP?

Without a clear ICP, your marketing and sales efforts can become scattered, leading to wasted resources and lower conversion rates. 

The negative impact is evident when observing how SaaS companies struggle:

• Slow or lack of growth
• Wasted resources and missed opportunities
• Scattered marketing and sales efforts
• Targeting a broad audience instead of high-conversion prospects
• Lower engagement and reduced ROI
• Inefficient use of time and money
• Difficulty in developing tailored, resonant messaging
• Weaker customer relationships

Budget is tight. Focus on your SOM and ICP

SaaS companies with tighter budgets need to think creatively, like a family stretching the last bit of cash at the end of the month. This mindset allows them to explore unconventional avenues and innovative solutions, discovering strategies that might have been overlooked before.

When funds are limited, focusing on your SOM and ICP becomes more crucial than ever. It ensures that every dollar spent targets the prospects most likely to generate revenue, maximizing your investment. 

Essentially, it’s about being smart with your money.

With a smaller budget, precision and care in solving specific problems are vital. 

How does DataBees help GTM teams experiment with different SOMs to find their ICP?

Data enrichment supercharges your efforts by adding valuable context to your existing customer data. 

This process can reveal insights about customer behavior, preferences, and potential market segments, making it easier to identify and target your ICP. 

At DataBees, we leverage hard-to-find data analytics and market insights to help GTM teams experiment with different SOMs and refine their ICP.

Market Segmentation

DataBees assists in segmenting your market based on a variety of criteria such as demographics, firmographics, and behavioral data. This enables GTM teams to accurately identify their SAM and SOM. For instance, by pinpointing SaaS companies that have recently hired landscaping services, DataBees can help identify potential new ICPs in niche segments.

Customer Insights

With a deep analysis of customer data, DataBees reveals hidden characteristics of your most valuable customers that might otherwise go unnoticed. This includes unique attributes and behaviors that define your top-performing segments, helping refine your ICP. For example, understanding which customer management software your target SaaS companies are using provides critical insights into their preferences and needs.

Resource Optimization

DataBees helps GTM teams make the most of their resources, ensuring every effort counts even with a tight budget. By focusing on the most promising prospects, teams can maximize their impact. DataBees’ data go beyond basic insights, allowing teams to anticipate market trends and understand customer behavior on a deeper level, turning data into actionable strategies.

Practical Application

Once DataBees gathers highly targeted information, such as specific software usage or company size, this data can be integrated into your outbound or manual email campaigns. 

This tailored approach ensures you’re reaching out with highly relevant messaging, increasing engagement and conversion rates. After successfully penetrating one market segment, DataBees can help you pivot to another ICP, continuously refining your strategy.

Benefits

• Uncover Specific Characteristics: Discover attributes of your most valuable customers that are not easily found elsewhere.
• Analytics: Understand potential market trends and customer behaviors.
• Increased Quality: Expect an uptake in the quality of leads and overall market understanding.

DataBees empowers GTM teams to experiment with different SOMs, uncover hidden customer insights, and optimize resources effectively, driving more precise and impactful marketing efforts.

Conclusion

Understanding your TAM, SAM, and SOM helps your SaaS company identify the easiest and most effective way to win and keep customers. You’re not aiming to be everything to everyone; instead, you’re strategically targeting prospects who are most likely to find value in your SaaS solution.

Photo by John Schnobrich on Unsplash