TAM Urban Dictionary: Tam

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Rank Abbr.Meaning
TAM Technology Acceptance Model
TAM Tamil
TAM Television Audience Measurement
TAM Toyota Astra Motor (Indonesia)
TAM Technical Advice Memorandum (IRS)
TAM Technical Account Manager
TAM Total Available Market
TAM Theoretical and Applied Mechanics
TAM Telephone Answering Machine
TAM The Amaz!ng Meeting (James Randi Educational Foundation)
TAM Torrance Art Museum (Torrance, CA)
TAM Thanks A Million
TAM Tivoli Access Manager (IBM)
TAM Turn Around Maintenance
TAM Third Avenue Management (various locations)
TAM Turkiye Arastirmalar Merkezi (Turkish: Center for Studies on Turkey)
TAM Tacoma Art Museum (Tacoma, WA)
TAM Telecom Application Map (TM forum)
TAM Transports de l’Agglomération de Montpellier (French)
TAM Textile and Apparel Management
TAM Test Access Mechanism
TAM Turnaround Management
TAM Transportation Authority of Marin (San Rafael, CA)
TAM Total Addressable Market
TAM TV Audience Measurement (Gallup poll)
TAM Time and Materials
TAM Tampico, Tamaulipas, Mexico (Airport Code)
TAM Twelve Angry Men (movie)
TAM Tile Assembly Model (mathematics)
TAM Tumor-Associated Macrophage
TAM Targeted Advertising Marketing (awards; St. Louis Business Marketing Association; St. Louis, MO)
TAM Transporte Aéreo Militar (Military Air Transport, Guatemala)
TAM Twentieth Anniversary Mac
TAM Tower Asset Management (Tower Financial Services Group Limited; New Zealand)
TAM Tense Aspect Mood (linguistics)
TAM Te Amo Muito
TAM Tanque Argentino Mediano (Argentine Medium Tank)
TAM Transportation Acquisition Manual
TAM Telecommunications Association of Michigan
TAM Total Absence Management (employee work absence)
TAM Telephone Association of Maine
TAM Théatre André Malraux (French theater)
TAM Training Assessment Model
TAM Three-Axis Magnetometer
TAM Test Access Matrix (testing server on an ADSL network)
TAM Tax Authority Master
TAM That Amuses Me
TAM Traditional and Alternative Medicine
TAM Technical Area Manager
TAM Texton Aero Mexico (Chihuahua, Mexico)
TAM Think-Aloud Method
TAM Tenner-A-Month (UK internet dial-up account fee)
TAM Trace Assertion Method
TAM Thyroid Awareness Month (January)
TAM Team Action Meeting
TAM Thalassaemia Association of Malaysia
TAM Tamil Monolingual (font)
TAM Transportation Aircraft Maintenance
TAM Training Assessment Module (US Army)
TAM Trade Assessment Mechanism (EU)
TAM Taxi Aéro Marilia (Brazilian Air Line)
TAM Tertiary Assessment and Moderation (New Zealand)
TAM Transport Alpes Maritimes
TAM Tire Assembly Machine
TAM Tactical Aerodynamic Missile
TAM Theater Analysis Model
TAM Technology Area Manager
TAM Table Assignment Matrix
TAM Tropical Asian Monsoon Region
TAM Telecommunications Applications Map
TAM Total Annual Market
TAM Target Area Model
TAM Task Area Manager
TAM Table Authorized Material
TAM Teresian Apostolic Movement
TAM Transportes Aéreos Marília SA (Brazilian Airline)
TAM Tokyo Automated Machinery
TAM Tactical Airlift Model
TAM Task Assignment Metric
TAM Team Activity Manager (job title)
TAM Telenet Access Management system
TAM Task Area Monitor
TAM Tool Aerospace Material
TAM Terminal Area Model
TAM Toxoid Antitoxin Mixture
TAM Transmit Analog Maintenance (Nortel)
TAM Teoplitz Approximation Method
TAM TEMPEST Advisory Message
TAM Test Acquisition Module
TAM Task Assignment Memorandum
TAM Task Authorization Memorandum
TAM Target Activated Munition
TAM Target Architecture Module (US Army)
TAM Tank Area Manager
TAM TotalNet Administration and Management Server (Fujitsu)
TAM Treat As Made (UK)
TAM Telecommunications Association of Maryland

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  • TAM SAM SOM – what it means and why it matters




TAM SAM SOM – what it means and why it matters

When doing their market analysis start-ups often refer to TAM, SAM, and SOM but what do these acronyms mean and why are they useful to investors when assessing an investment opportunity?

TAM SAM SOM definition

TAM, SAM and SOM are acronyms that represents different subsets of a market.

  • TAM or Total Available Market is the total market demand for a product or service.
  • SAM or Serviceable Available Market is the segment of the TAM targeted by your products and services which is within your geographical reach.
  • SOM or Serviceable Obtainable Market is the portion of SAM that you can capture.

Still confused about TAM SAM SOM? Let’s take an example.

Let’s say you are starting a fast food chain. Your TAM would be the worldwide fast food restaurant market. Potentially, if you were present in every country and
had no competition you would generate TAM as revenues.

Sorry but that’s not going to happen!

Let’s be more realistic. You are starting your restaurant chain in two cities where the demand for fast food can be estimated based on: the population, their food habits, and the
revenues generated by fast food restaurants in other cities having similar demographics.

That is your Serviceable Available Market: the demand for you type of products within your reach. In other words if you were the only fast food in town you would generate
revenues of SAM.

Now you are probably not the only fast food in town…

So realistically you can hope to capture only a fraction of your SAM. Most likely you will attract fast food aficionados living or working close to your restaurants and
a fraction of the people located further away that are willing to give your chain a try for the sake of fast food diversity. This is your SOM.

Ok, now let’s look at why and when they matter.

TAM SAM SOM, when do they matter and why?

Put yourself in an investor shoes. You need to deliver a target return to your own investors which implies both de-risking the investment early (i.e. figuring with the
minimum possible of capital if the start-up has a market) and investing in opportunities which offer substantial upside potential (i.e. huge market size).

The SOM and SAM help de-risking the investment while the TAM enables to assess the upside potential.

The Serviceable Obtainable Market is your short term target and therefore the one that matters the most: if you cannot succeed on a fraction of the local market chances are
that you will never capture a large part of the global market.

As an investor I expect you to have a realistic objective and I will judge you on your ability to deliver that objective.

To be realistic your SOM needs to factor in:

  • your product: people will want to buy your goods
  • your marketing plan and the identified distribution channels: you have a clear plan to reach a large portion of your target customers
  • your SAM and the strength of your competition: chances are that you are not going to take 50% market share within 6 months. Therefore your SOM needs to be a reasonable fraction
    of your Serviceable Available Market.

For the investor the ability to reach your SOM means that he will not lose his shirt. In that context SAM acts as a good sanity check to assess the likelihood of achieving the
market share implied by the Serviceable Obtainable Market and as a proxy for the short term upside potential of your business.

If you can deliver SOM in time then you are capable and credible, and you might be able to increase the market share and reach a more important penetration of the SAM which would
deliver a good return on investment.

And then comes the Total Available Market.

Once you have demonstrated your ability to penetrate a local market and de-risked the investment, the investor can start looking at how you can expand and increase the company’s
penetration within the TAM.

Let’s illustrate this with a numerical example. You come to pitch an investor who has a target return of 10x. You are seeking a £250k investment in exchange for 20% of the
start-up’s equity.

Based on your market research and business plan we can reasonably assess that:

  • TAM = £2bn
  • SAM = £100m
  • SOM = £5m within 2 years and £12m within 4 years
  • EBITDA margin = 25%
  • Valuation at exit = 8x EBITDA based on the value of listed companies within the sector

What happens if you deliver your plan?

Well, once you deliver £5m in revenues the EBITDA is £5m revenues x 25% margin = £1.25m and the company is worth 8 x £1.25m EBITDA = £10m. The investor return on investment is
£10m x 20% ownership / £250k investment = 8.0x.

When you reach £12m of revenues the EBITDA is £12m x 25% = £3m and the company is worth 8 x £3m = £24m. The investor return on investment is £24m x 20% ownership / £250k = 19.2x.

Clearly here if you can capture your SOM the investor will meet his target return and he is then left with a company that has achieved 12% market share on a segment
that represents 5% of the TAM of £2bn (£100m SAM / £2bn TAM).

If you decide to expand the company and scale internationally, the company revenues potential (assuming you can reach a similar market penetration at scale) becomes 12% market
share x £2bn TAM = £240m. Which would imply a £60m EBITDA (25% margin) and
therefore a potential valuation of £60m x 8 = £480m. The investor could therefore offer to invest a up to £48m in the company in year 4 in order to meet his target return
on investment of 10x.

As you can see TAM SAM SOM have different purposes: SOM indicates the short term sales potential, SOM / SAM the target market share, and TAM the potential at scale. All play
an important role in assessing an investment opportunity and the focus should really be on getting the most accurate numbers rather than the biggest possible numbers.

I hope this article helped you get a better understanding of these acronyms. If you found it useful please share it and if you have any questions get in touch or leave a comment below.