Market defines the scope of a company’s potential customer base ensuring the products and services we produce meet the needs of a concise group. It systematically narrows down from the Total Addressable Market (TAM)—the broadest potential reach of a product or service—to the Service Addressable Market (SAM), which reflects the realistic portion the company can serve given its current capabilities.
In any near term period – typically annually – we will narrowly focus on our Ideal Customer Profile (ICP) – the most valuable and winnable customers. This structured approach ensures that growth strategies are data-driven, resource allocation is efficient, and go-to-market efforts are concentrated on the highest-value opportunities, maximizing the company’s ability to scale effectively.
For B2B companies the definition of market ideally includes core firmographic details and a text description of the pain points the customer has that our solution solves. Firmographic data can be anything that’s typically provided in databases of company but my experience is the best items to provide are:
- Industry – The industry or industries we target
- Size – Size in terms of employee count ranges we target
- Geography – Countries, States or Territories or Area
- Technographic – What technologies the company has deployed that indicate that may be a good fit for our solution. While technographic is often relevant to most technology companies my experience is that it can often be creatively used in other industries as well as an effective filtering strategy.
Total Addressable Market (TAM)
Total Addressable Market (TAM) represents the entire pool of potential customers who could theoretically benefit from a product or service if a company were able to achieve 100% market share. For B2B companies, this is generally defined by the set of relevant industries, geographic locations, and company sizes. For consumer-facing offerings, it may encompass broader demographic and psychographic categories. The TAM is not necessarily the market a business will serve right away but serves as an overarching view of the maximum market potential.
Service Addressable Market (SAM)
Service Addressable Market (SAM) is a more focused portion of the Total Addressable Market that a company can realistically capture with its current resources, capabilities, and distribution channels. While the TAM is a theoretical maximum, the SAM narrows down who the company can actually serve given practical considerations like technology infrastructure, geographical reach, and alignment between product features and market needs.
Ideal Customer Profile (ICP)
The Ideal Customer Profile (ICP) defines the exact types of prospects within the Service Addressable Market that the company can target most effectively. While the SAM may be broad, the ICP identifies those perfect-fit customers who are likely to benefit most from the product or service and who are most profitable and loyal. The ICP guides daily marketing and sales efforts because these are the customers the company can attract and retain with the highest likelihood of success.
A clearly defined ICP guides marketing and sales efforts by focusing resources on high-value prospects that are most likely to benefit from (and pay for) the product. It helps the business tailor its messaging and product development to customer needs. All growth initiatives – from demand generation to feature prioritization – use the ICP to stay aligned with the customers that matter most. In essence, it draws a boundary so the company says “no” to distracting customer segments and doubles down on the right ones.
As you grow you’ll move from a single ICP to multiple target customers segments with the potential for different selling and servicing motion in these segments. To keep things simple just think of “segmentation” as the process of going from one ICP you serve to more than one.
Market Development Process
- Research and Data Gathering: Analyze your current customer base and market. Identify common attributes of your best customers (the ones who get the most value from your solution and are most profitable). Group customers by characteristics like industry, size, geography and technology use and separately use case, or pain points. Supplement this with market research on which segment has the greatest need and market opportunity for your solution.
- Validate: Validate the ICP by reviewing it with the sales/CS team and perhaps talking to a few customers. Once confirmed, use it to focus marketing campaigns and sales outreach. Update internal training so that everyone from product to customer success knows who the primary target is. Revisit the ICP periodically as the market or product evolves.