What is TAM?

TAM, or Total Addressable Market, is a term used to refer to the potential revenue or size of a market for a specific product or service. It’s a way to quantify the maximum potential of a market by considering the total number of potential customers and the maximum amount they would be willing to pay for a product or service.

Contents:

How to calculate TAM?

Why do I need to find my TAM?

Questions to ask while defining your TAM?

How to calculate your TAM using a data platform?

How to calculate TAM?

There are a few different ways to calculate Total Addressable Market (TAM), but the basic formula is:

TAM = Total number of potential customer’s x Average price per customer

Here’s a step-by-step process for calculating TAM:

1. Identify the target market for the product or service. This includes defining the characteristics of the customers who are most likely to buy the product or service, such as demographics, location, company size, and so on.
2. Estimate the total number of potential customers in the market. This can be done by looking at industry statistics, market research, or by leveraging a data platform.
3. Determine the average price per customer. This is the price that the customers in the target market are willing to pay for the product or service. It can be found by looking at prices of similar products or services in the market, or by surveying potential customers.
4. Multiply the total number of potential customers by the average price per customer to get the TAM.

It’s worth noting that, this is a very rough estimate, actual market size might be different, because this method does not take into account other market factors such as product differentiation, competition, customer loyalty, etc.

Also note that it’s important to be realistic and conservative when estimating the total number of potential customers and the average price per customer, to avoid overestimating the TAM. It’s also a good practice to validate the calculation with a secondary method or external data, or by comparing to similar product/services market size.

Why do I need to find my TAM?

There are several reasons why a company might use Total Addressable Market (TAM) as a metric:

1. Setting realistic growth targets: By understanding the size of the market, a company can set realistic growth targets for sales and revenue. This can help them to determine how much market share they need to capture in order to achieve their goals.
2. Identifying new opportunities: TAM analysis can help a company to identify new opportunities for growth by identifying untapped segments of the market that they could potentially serve.
3. Benchmarking performance: TAM can be used as a benchmark to measure a company’s performance against its competitors. By understanding the size of the market and how much of it they are currently capturing, a company can determine where they stand in relation to their competitors.
4. Identifying market trends: TAM can be used to identify trends in the market, such as changes in consumer behavior or shifts in industry demand. This can help a company to anticipate and adapt to changes in the market.

Overall, TAM is a useful metric for businesses to have a sense of the size of their market and its potential.

Questions to ask while defining your TAM

Here are some questions that can help a company to define its Total Addressable Market (TAM):

1. Who are the target customers for our product or service? What are their characteristics, such as demographics, location, firmographics, and so on?
2. How many potential customers are there in our target market? Are there any data platforms with industry statistics or market research reports that can provide this information?
3. What is the average price that customers in our TAM are willing to pay for our product or service? How does it compare to similar products or services in the market?
4. What are the key drivers of demand in our TAM? How do they influence the size and growth of the TAM?
5. What are the major trends in our TAM? Are there any changes in consumer behavior or shifts in industry demand that we should be aware of?
6. Are there any geographical limitations or are the customers or prospects spread across regions or countries?
7. What is the competitive landscape like? Are there any existing players or new entrants in the TAMt? How does our product or service compare to theirs in terms of price, features, and customer service?
8. What are the barriers to entry in our market? Are there any regulatory or technological challenges that will make it difficult for new players to enter the market?

By answering these questions, a company can gain a clear understanding of its TAM and identify opportunities for growth. It’s also important to conduct this analysis periodically, as market conditions and consumer behavior may change over time.

How to calculate your TAM using a data platform?

It is also a good idea to use a B2B data platform like SMARTe to filter by industry, company size, location, etc. Advanced search filters help in narrowing down on your target market.

A data-driven approach is the best way to break down your TAM and focus your sales and marketing efforts on these selected accounts.

SMARTe’s Data Platform has advanced search filters to help you with accurate TAM analysis.

Sign up for free to get your TAM count and reveal contact information with 10 free credits.

Schedule a quick demo and product walkthrough to find more details about your TAM.