Why it is Important to Define Target Markets using TAM, SAM, SOM, and ICP

More often than not, clients are surprised to discover that their target market is different than their client list. With research and a little work, you can properly identify and target those most likely to buy.

Not Everyone is a Fit as a Buyer, So Focus on Only Those Who Fit

Why it is Important to Define Target Markets Before you bring any product or service to market, you first need to know who to target. In other words, you have to define target markets and cull your list. For this reason, it is critically important to define your Ideal Customer Profile (ICP).

So, where do you begin? Start with identifying who is within your Total Addressable Market (TAM). To explain, your TAM represents all the companies you could possibly ever sell to. Next, calculate the maximum potential revenue you can generate with your product or service. Then, you must narrow your focus by segmenting it into that portion of the market you can actually reach. This segment is called your Serviceable Addressable Market (SAM). But that isn’t enough. It then needs to be segmented further into your Serviceable Obtainable Market (SOM).  The SOM is the share or percentage of the market you can realistically capture. This includes market size, market reach, product, competition, and historical performance.

Why Less is More When You Define Target Markets

Why is the SOM so important? SOM allows you to concentrate your time and resources on the best potential buyers. It also breaks down exactly where your company fits among competitors. With this knowledge, management can select a strategy that better positions the company within the marketplace.

After you determine your SOM, you’re ready to define your Ideal Customer Profile (ICP). Your ICP represents your  “dream clients.” Size, industry, current business challenges, or compliance issues may all go into defining your ICP. You can also ask, “What customers do I not want?” and “What customers do I want more of?” With each step in the process your list gets smaller. However, those on the list are much better and more deserving of your overall efforts. Ultimately, you are left with a fraction of the total contacts when you define target markets using these segments.

Focus Efforts on the Right Prospects

Once you finish defining your TAM, SAM, SOM and ICP you have the information to determine where to put your efforts. By the same token, you are armed with the information you need to know what prospects to avoid. By focusing efforts on the right prospects and ignoring the wrong ones your success is more likely. This will help with operational efficiencies as well as increasing your ROI. Armed with this information, you can now develop a sales and marketing strategy that is focused and positioned for success. 

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