Know the size of market for your Cloud Software

Know the size of market for your Cloud Software

New tech companies can make headlines with their stratospheric valuations, propelled by analysis that calculates the potential size of the market for their product and how much of that market they can reasonably (and believably) capture, serve and dominate.

Added to this calculation is evidence of any blisteringly-paced increase in customer acquisition and revenue growth. The result is used to estimate potential future profits, so for a company with a fairly unique product that could reach a global market and can prove high-growth we begin to see how a stratospheric valuation is possible.

However, for most commercial managers this is not about company valuation (unless they are seeking funding or selling the business), but using the analysis when developing their go to market strategy to gain valuable insights that:

  • Identify where the market opportunities for the cloud software lie.
  • Help to focus sales, marketing and supporting activities.
  • Highlight factors in the business model that may limit their ability to realise market opportunities.

So how do you work out the size of the market for your cloud software?

1. Firstly, what is the potential market size for your software product?

This is your Total Addressable Market (TAM).

Your TAM is the sum of all the possible business opportunities (demand) available for your software.

2. Secondly,how much of that market does your business model reasonably (and believably) allow you to address?

This is your Serviceable Addressable Market (SAM)

Your SAM is a sub-set of TAM. SAM is the total of all the business opportunities that your business model will allow to reach and support.

It is unlikely that your software can be all things to all people’ so while your TAM maybe all available software sales, your business strengths will make your software more beneficial to specific segments of the software market than others. These segments are your SAM.

3. Thirdly, how much of what is addressable can your business actually obtain?

This is your Serviceable Obtainable Market (SOM) or Target Market (TM)

Your SOM or TM represents the opportunities identified in the Serviceable Addressable Market (SAM) analysis and represent the quickest route to success. It takes into account the level of competition, market trends, countries and sales channels.

The resulting TM becomes the focus of your sales and marketing activity.

Strategy for Growth.

A common strategy for most software businesses is to focus their sales and marketing efforts on the identified Target Market in an effort to build a sustainable market-leading position before moving into the other market segments, identified by the Serviceable Addressable Market analysis.

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