Questions

Google for Online Shopping: How do I calculate market size and TAM, SOM and SAM? Do the three have to be different? (Please refer to details)

The product is a product for all e-commerce users. Like a Google for Product Search. Monetisation is through affiliate fees on completed sales. How do I determine size of market? Almost everyone suggests that you need to look at how many users might pay for this. This is not the model. The product is free. Like google. (I have figured out initial customer acquisition) I want to know this, How do I identity SAM and SOM? My TAM is all B2C ecommerce users. Technically this is also my SAM and SOM. Assuming affiliate profit is 10% per sale, my TAM will be 10% of 1.5 trillion ( size of b2c ecommerce sales) = 150 billion. In the best case scenario where I can ensure that every ecommerce user uses my product this also becomes by SAM and SOM. I know I should focus on a small-niche-ideal-beachhead-early adopter market right now but why can't my TAM be my SOM? And what is the difference between SAM and SOM in my case? Please recommend any good books or articles to help me figure this out. Most resources focus on traditional businesses and don't cover this.

3answers

First of all, starting a business on revenue generated from affiliate sales or incidental revenue is going to be minor and not enough to scale much less build a business. Unless you're a "solo-preneur" you'll need some additional form of revenue if you intend to add to the software-as-service website after it's launched.

Also, you need to determine a) if you have a budget allocated for completion of this project, and you would be able to estimate this based on completing a business plan (if you have not already done so), and then calling several agencies for estimates. Expect to pay (at least five grand to get it off the ground).

As a developer, I used eCommerce daily, and would be interested in a related service that could measure factors such as tracking visitor peregrinations through my site and what drove them to place one order over another, for example, Most other data I get through the eCommerce provider.

So I would say that one of the reason's it's difficult to come up with some of these factors is not yet know enough about the business model itself. You can't determine size of a market without first identifying specifically what it is, and how that may change. You'd need to try a trial run, talk to some similar ventures, (especially similar ones that are local so you can meet them personally).

I have no issue with all the jargon you're using, but I do not agree with the sentiment that traditional business references won't help. You need a business plan if you have not already completed one. The next step is narrowing in on target audience; you're coming up with numbers and estimations based on theory and not on actual product launch and tests - and this can be fatal for any kind of launch where presumptions dominate over exact data.

I think once you narrow this in more, focus on niche market(s), find some ways to test your concept (so you can get what's called proof of concept), figure out how you are going to finance this while it's struggling for its first years, figure out how to scale and measure ROI, you might have something to work with.

I would go to Score.org, and look up some different business plans, business model mock-ups, find references to software as service, then I'd look up similar businesses on Manta, Dunn & Bradstreet, or other corporate intelligence sites, look for similar entities (most of which flopped statistically) and look for local businesses that are similar in practice or intent and break bread with them. There's simply not enough meat on the bones for me to speculate on possible income streams; it's like going in front of investors and explaining to them how big a market share is and how much it generates annually and then that your business will exploit that market share. You need to explain how, why it's different and unique, how you'll compete, and what your revenue sources will be and show some kind of sustained profit through at least 1 to 2 years before they'll part with a nickel. So by the same token you have to assume the onus of conducting more due diligence.


Answered 6 years ago

TAM, SAM and SOM are nice terms to put on a powerpoint deck but ultimately they're not useful for you to run your company

Your TAM is huge, that's great, but target a segment where you can make a difference and make that your SAM. Amazon started with books and then expanded, if you start with everything but you only have a handful of SKUs per category you'll get nowhere on revenue, have larger costs, and customer experience will be terrible. Uber started with black car (premium) service only before expanding, amazon books only, Tesla with just one model.

So pick a segment to focus on, do a swag of your TAM, SAM etc... and focus on execution of the business rather than the pitch deck


Answered 5 years ago

This is interesting. My specialty is statistics and I love metrics. You could look at online retail metrics. For example, metrics are: average order size, percent of returning customers and percent of new customers. There is average number of items per purchase, and percent of canceled checkouts. There is a wonderful site, kpilibrary.com. It has wonderful metrics. For SOM, metrics are conversion rates for a website, number of retweets and cost per action. For SAM, a KPI is words to sale. Thank you.


Answered 3 years ago

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