WEBVTT 00:00.110 --> 00:07.940 In this video, let's define and go over an example of Sam serviceable addressable market. 00:07.970 --> 00:12.740 This is a subset of your Tam, the total addressable market. 00:12.740 --> 00:18.440 Because we never capture the total addressable market, because let's say you have a restaurant, a 00:18.440 --> 00:19.910 gourmet restaurant. 00:20.300 --> 00:26.240 And while the overall market may be a certain size, you know, you're probably not capturing the people 00:26.240 --> 00:30.230 who like to go to McDonald's or similar style fast food restaurants. 00:30.230 --> 00:37.730 They are probably younger, have a different spending budget, different income, different education 00:37.730 --> 00:38.450 level. 00:38.600 --> 00:40.940 It's not an opinion. 00:40.940 --> 00:45.830 It's backed up by research and by industry data. 00:45.830 --> 00:48.800 And you would know that getting into that business. 00:49.100 --> 00:58.040 So what you would look for are things like demographics, like location of people, age of people, 00:58.070 --> 01:00.920 earning potential of people, education level. 01:00.950 --> 01:08.630 And really, whatever your product is, only a subset of the total market would be a fit. 01:08.630 --> 01:12.790 And your job is to figure out, well, what is your actual addressable demographics. 01:12.790 --> 01:16.810 Now, in addition to demographics, you might have a product niche. 01:16.840 --> 01:20.290 For example, let's say you have a language learning app. 01:20.320 --> 01:30.460 The niche might be that you the way your product works is you maybe pair people up with a buddy. 01:31.120 --> 01:37.270 So it's kind of more of a social approach, what some people kind of like to just learn on their own 01:37.270 --> 01:38.230 and do their own pace. 01:38.230 --> 01:38.740 Right? 01:38.770 --> 01:46.120 So suddenly, let's say 50% of the total addressable market is not really a fit for your product because 01:46.120 --> 01:49.780 you know, your product is only for if you want to work with a buddy. 01:50.680 --> 01:57.190 So you also want to look at how your product really works and for whom it's ideal. 01:57.190 --> 02:04.720 And that will also take a slice of the total addressable market and create your serviceable addressable 02:04.720 --> 02:05.050 market. 02:05.080 --> 02:15.190 So basically the calculation is take your total addressable market and you identify what is the percentage 02:15.220 --> 02:20.650 of those people that you realistically can target. 02:21.310 --> 02:21.520 Okay. 02:21.550 --> 02:28.210 So let's say in the restaurant example, it would be, you know, how many people have, uh, upper 02:28.210 --> 02:32.860 middle class or high upper class salaries. 02:32.860 --> 02:37.060 Those would be the target market for the gourmet restaurant. 02:37.660 --> 02:45.190 So maybe that would be 15% of the total population, or 30% of the total population in that city. 02:45.190 --> 02:52.000 So your serviceable addressable market becomes just 30% of your total addressable market. 02:52.000 --> 02:57.820 Or you might have a restaurant that's like in a kind of a far part of town where people are just not 02:57.820 --> 02:59.650 going to travel all across the town. 02:59.650 --> 03:05.800 So maybe you take 50% off your total addressable market, because just a lot of people are just not 03:05.800 --> 03:07.120 going to travel so far. 03:07.480 --> 03:10.390 So those are the kind of considerations that you want to go through. 03:10.390 --> 03:17.620 And obviously, as you can see for different kinds of business scenarios, the thinking is very different. 03:17.770 --> 03:24.310 The easy calculation is to understand demographics, but you also want to understand psychographics. 03:24.310 --> 03:25.720 These are things you cannot measure. 03:25.770 --> 03:28.500 but they are very real. 03:28.530 --> 03:37.740 Like, how willing are your customers to travel far distances in the case of the restaurant? 03:38.250 --> 03:45.840 Well, if they love gourmet food and it's not something people get every day, so it's a special occasion 03:45.870 --> 03:46.650 kind of thing. 03:46.680 --> 03:54.360 Well, for a special occasion, people will travel much more likely across town for a gourmet restaurant 03:54.360 --> 03:58.200 than they would be to travel for a fast food restaurant. 03:58.200 --> 04:02.040 Because the fast food fast food restaurant is available probably three blocks from where they live. 04:02.070 --> 04:02.550 Right. 04:02.550 --> 04:07.170 So for a fast food restaurant, people wouldn't travel. 04:07.200 --> 04:12.360 But for a gourmet restaurant, far larger percentage of people would travel further. 04:12.360 --> 04:15.030 And this is kind of a psychographic thing. 04:15.300 --> 04:23.910 So you also want to think between the lines in the gray areas of who are really what is the consumer 04:23.910 --> 04:25.470 behavior, truly? 04:25.470 --> 04:31.590 And then out of that, realistically come up with your serviceable addressable market. 04:31.590 --> 04:35.100 So that's how you would calculate the serviceable addressable market.