Serviceable available market explained

Definition

A serviceable available market is a concept in business strategy and market analysis, closely related to total available market (TAM). SAM focuses on the portion of the market that a company can realistically target and serve with its products or services.

What is a serviceable available market?

SAM refers to the portion of the total addressable market (TAM) that a company can effectively reach and serve with its products or services. It represents the subset of potential customers within a market segment that the company can realistically target given its resources, capabilities, and market positioning.

SAM analysis requires careful segmentation of the market into relevant segments. However, SAM focuses on identifying and prioritising segments that align with the company’s strategic objectives, capabilities, and competitive advantages.

Calculating SAM involves narrowing down the TAM to the specific segments that the company intends to target. SAM estimation may also consider factors such as distribution channels, regulatory constraints, and competitive landscape.

This analysis helps companies identify the most attractive market segments to focus their resources and efforts on. Furthermore, it guides resource allocation decisions and by focusing resources on segments with the greatest revenue potential and alignment with the company’s strengths, companies can optimise their market penetration efforts.

While SAM represents the immediate market opportunity, it also serves as a foundation for identifying future growth opportunities, as companies can gradually expand their reach to similar segments or new geographic markets.

Example of a serviceable available market

Let’s consider an example of SAM for a company producing organic skincare products targeting young adults aged 18-30.

The company estimates there are approximately 50,000 young adults fitting this profile in the city. However, due to factors such as distribution limitations and competition, the company determines it can realistically serve around 20% of this segment.

SAM = Number of target Customers x Company’s penetration rate

SAM = 50,000 customers x 20% = 10,000 customers

The serviceable available market for organic skincare products among young adults aged 18-30 in the city is estimated to be around 10,000 customers.