by: James Young
“Markets fluctuate and markets can be unpredictable at times. This is why having a resilient portfolio is critical.”
Hendrith Vanlon Smith Jr.
To achieve growth and relevance, associations need to understand their market.
Why? Because markets evolve, new markets emerge, member needs change, and young professionals have different cares and wants. Plus, external forces are often beyond our control.
Who do we serve? Who do we want to serve? Who can we serve? What value do we provide to ensure the market keeps coming back for more?
This article provides an overview of association market sizing basics through the lens of membership. In doing so, we cover the concepts of total addressable market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM).
In service of growth, we will learn about the size of our market, potential market, and our ability to realistically serve our market.
In future articles, we will dig deeper into ways to analyze our market and understand our membership communities. This article intends to put those forthcoming articles into a broader, strategic context.
The Product Community is a product development learning community designed specifically for associations.
Why We Need To Know Our Market
“Markets don’t care how smart you are.”
Associations are practical organizations grounded in community, collaboration, and shared values. Independent of how we evolved, we tend to have built-in markets without a lot of traditional competition.
For trade associations, it’s generally industry-based: the American Trucking Association, Motion Picture Association of America, or the National Retail Federation.
For professional societies, it’s largely (but not always) based in profession, job category, or calling: American Nurses Association, American Bar Association, or the American Society for Quality.
One thing we tend to take for granted is understanding and clearly defining our market. Just because these markets can be considered built-in, they should not be considered an assumed or assured market.
It’s not because we don’t care. It’s more that our particular market niche has evolved as associations themselves have evolved: organically.
In a previous article on positioning your association for growth, we covered the uniqueness of association competition, competitive landscape, and Michael Porter’s Five Forces Model.
This article will go a step further by introducing some tools to guide associations in understanding their market.
Understanding an association’s market is often something viewed as assumptive: cancer physicians, apple growers, jewelry businesses, school librarians, or professional planners.
If our markets are truly assumptive, how do we position ourselves for growth?
The best way is to define, track, and evaluate our markets so we are proactive and ready to meet the rapidly evolving future.
Commonly Used Market Analysis Tools
“No matter how much data we collect on a target audience, the decision about what to do about it is left to guesswork and intuition.”
David Allison, The Death of Demographics
There are many market analysis tools available for associations. The most appropriate ones depend on individual association needs or the specific market we are analyzing.
Before we dig deeper into understanding a particular association’s market, I wanted to quickly cover five market analysis tools commonly used by associations. None of these will tell us how large our market is, though some can provide some broad input into changing forces or evolving needs. All have strengths, but are largely imperfect and only tell part of the story.
- SWOT Analysis: This tool helps in identifying an association’s Strengths, Weaknesses, Opportunities, and Threats, which can be used to make organizational decisions. It is a baseline tool that alone won’t tell you much about your market.
- PESTLE Analysis: This tool helps to analyze the Political, Economic, Social, Technological, Legal, and Environmental factors that may impact an association’s industry or market.
- Porter’s Five Forces Analysis: This tool is used to analyze the competitiveness of an industry by evaluating the bargaining power of suppliers, buyers, and competitors, as well as the threat of new entrants and substitutes. We covered this tool in our recent article on positioning your association for growth.
- Market Segmentation: This involves dividing a market into distinct groups of member consumers based on factors such as age, income, and preferences, which can then be targeted with specific marketing strategies.
- Member Surveys and Market Research: These tools can be used to gather information about member behavior, preferences, and opinions, which can help associations identify trends and develop effective marketing strategies.
Building on these fundamental tools, the first concept we’ll review is market size. In doing so, we’ll provide overviews of TAM, SAM, and SOM.
This provides some confidence into the market we serve as well as some insight into future possible markets. As associations operate differently than for-profit organizations, this can sometimes get tricky.
“Innovation needs to be part of your culture. Customers are transforming faster than we are, and if we don’t catch up, we’re in trouble.”
Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) are three foundational concepts for associations to master.
They can be used by associations to estimate the potential size of a market and to identify the portion of that market that can realistically be captured and served.
Total Addressable Market (TAM)
The Total Addressable Market (TAM) is the total demand for a particular program, product, or service. It represents the total revenue that could be generated if an association captured 100% of the market share.
Though no association will garner 100% of the market, it’s important to calculate TAM so we have a sense of who we can potentially serve. It also provides insight into specific parts of the market that we may be missing.
TAM is calculated by estimating the number of potential buyers for a particular product or program, and multiplying that number by the price that each member would be willing to pay for the product or program.
Calculating TAM for an association can be a bit challenging as we tend not to target customers or generate revenue in the same way as a for-profit business.
However, it is still important to understand the potential size of the market to determine the scope of the association’s impact and potential for growth.
Here is an example of how to calculate the TAM using an anonymous association that serves marketing professionals.
- Define the mission: The first step is to clearly define the association’s mission and what services or programs it offers to achieve that mission. Let’s say our association’s mission is to support and advance the careers of marketing professionals.
- Identify the target audience: Determine the specific people or organizations that the association is trying to serve.The target audience for this professional association would be marketing professionals, such as marketing managers, marketing directors, marketing coordinators, and other marketing professionals in various industries.
- Determine the size of the target audience: Estimate the number of people or organizations that fall within the target audience. This can be done by using census data, public surveys, or other publicly available data sources. According to the Bureau of Labor Statistics, there were approximately 310,000 marketing managers and 280,000 marketing specialists in the United States in 2020. Assuming a portion of those professionals are interested in joining a professional association, let’s estimate the target audience to be 400,000 individuals.
- Determine the demand for the association’s services: Assess the level of demand for the association’s services among the target audience. This can be done by conducting surveys or analyzing data on similar organizations that serve the same or similar target audience or by analyzing the competition and the level of interest in marketing professional development and networking opportunities. Let’s assume there is moderate demand for this type of professional association.
- Estimate revenue potential: Associations may not generate revenue in the traditional sense, but they may still have an estimated budget or financial targets. Consider the revenue we need to achieve our mission, and estimate how much of that revenue can realistically come from the target audience. Let’s assume the professional association has an annual membership fee of $200 per member. If the professional association can attract 10% of the estimated target audience of 400,000 professionals, then the total revenue potential would be $8 million per year.
- Calculate the TAM: Finally, multiply the estimated size of the target audience by the estimated revenue potential. This will give an estimate of the total addressable market for your association. Multiplying the estimated size of the target audience (400,000) by the estimated revenue potential ($8 million) gives a total addressable market of $3.2 billion.
It’s important to note that calculating the TAM for an association is not an exact science and will require some degree of estimation and extrapolation. However, this exercise can provide valuable insights into our potential impact and help guide strategic planning and budget forecasting.
Serviceable Available Market (SAM)
The Serviceable Available Market (SAM) is the portion of the Total Addressable Market (TAM) that an association can realistically capture, given their specific capabilities and resources.
SAM takes into account factors such as the association’s business model, marketing strategy, capacity, capability, and competitive landscape. In other words, SAM represents the portion of the market that an association can effectively serve.
For example, let’s say that an association wants to offer a certificate program for oncology nurses. The TAM for critical care nurses could be fairly large, given the continued incidence rate of cancer and number of cancer centers in the US.
However, an association might not have the resources to develop agile programming or reach the market or to compete with larger, more established associations or more established certificate programs for nurses.
Returning to our example of an association that serves marketing professionals, this is how we would calculate our SAM:
- Determine the size of the target audience: We estimated that the size of the target audience is 400,000 marketing professionals.
- Determine the demand for the professional association’s services: Assuming moderate demand for this type of association.
- Estimate the market penetration: Let’s assume that the association has been operating for some time and has already captured 5% of the estimated target audience of 400,000 marketing professionals.
- Calculate the SAM: Multiplying the estimated size of the target audience (400,000) by the estimated market penetration (5%) gives a serviceable available market of 20,000 marketing professionals.
An association’s SAM will always be smaller than the TAM so this represents the portion of the total addressable market that the professional association can realistically serve at this point in time, given its current resources, and market share.
Serviceable Obtainable Market (SOM)
The Serviceable Obtainable Market (SOM) is the portion of the Serviceable Available Market (SAM) that an association can actually capture, given their marketing and sales efforts.
SOM takes into account factors such as an association’s marketing budget, membership team, and support infrastructure. In other words, SOM represents the portion of the market that an association can effectively reach and convert into paying members.
For example, let’s return to our fictitious marketing association.
The association might have the resources to serve a certain portion of the marketing professional market (SAM), but they might not be able to reach all potential members due to an unformed value proposition or limitations in their marketing and sales efforts.
- Estimate the market penetration: Let’s assume that the professional association has been operating for some time and has already captured 5% of the estimated target audience of 400,000 marketing professionals.
- Determine the serviceable market share: Let’s assume that the professional association can realistically capture 25% of the serviceable available market of 20,000 marketing professionals.
- Calculate the SOM: Multiplying the serviceable available market (20,000 marketing professionals) by the serviceable market share (25%) gives a Serviceable Obtainable Market of 5,000 marketing professionals.
As you might expect, our SOM is always smaller than our SAM as we can only realistically capture the portion of the market we are able to serve.
In times of turbulence, ambiguity, and unknowns, it is vitally important to understand and regularly assess your association market.
TAM, SAM, and SOM are useful for associations to estimate market potential, identify target markets, and plan their marketing strategies.
In future articles, we will and dig deeper into assessing the particular needs of a robust membership community and how to identify and reach new markets.
This is the basis of creating great and ongoing value for an appetizing market.
Next week, we will build on TAM, SAM, and SOM to focus on helping associations identify, evaluate, and prioritize market opportunities.
Remember, product-led growth fuels connection. Join the product community and flip your destiny.
About the Author
James Young is founder and chief learning officer of the Product Community®. Jim is an engaging trainer and leading thinker in the worlds of associations, learning communities, and product development. Prior to starting the Product Community®, Jim served as Chief Learning Officer at both the American College of Chest Physicians and the Society of College and University Planning.