An Explanation with Examples of Total Addressable Market Analysis

This article is a continuation of our earlier article – What Is Total Addressable Market and How Does It Work? As you know, the total available market demonstrates the overall market opportunity that exists within the market for your product, service, or software.

No matter what kind of business you have- start-up, small-medium enterprise, or large enterprise. It is essential to understand and access your potential market size and major players.

TAM is a popular metric but often misunderstood.

How to not mess up with your TAM analysis? Here are a few points listed below:

As a form of Market sizing, Total Addressable Market is often misunderstood by many of the businesses. It is an exercise to shed light on your potential market, and stakeholders can invest funds into the company’s new product or services. With TAM, you gain insights on where is the possible opportunity? Where do your competitors stand in the market?

Sales representatives need to avoid below blunders:

1. Don’t define the market size with the problem– For example- if there is an Opioid crisis in the USA and is a $100 billion problem, then it is the size of the problem and not the size of the market. You can’t define the size of the market with the size of the problem.

2. Market Approach: It is a huge mistake to underestimate or overestimate the market size. For example, if a sales executive thinks, he will gain at least 2 to 5% of the market, which is a substantial total market slice for his product. Or it can be more than 5% of the market share also. So, guesswork doesn’t work out. It is recommended to apply the Market approach as per our product. There are three types of market approaches-

    • Top-down (Using industry research and reports)
    • Bottom-up (Using data from early selling efforts)
    • Value theory (Using conjecture about buyer willingness to pay)

Find more on the market approach here.

As a sales executive, ensure to use the approach that gives a fair idea about the potential opportunities in the market. You would either overestimate or underestimate the market with regards to the product or service.

3. Understanding the room in the market: You must select the market that is suitable for your product. The market depends on what kind of product, service you want to sell to your ideal customers.

So, for example, if there is a $500 billion market for the Automotive industry, then that’s the size of the automotive market and not yours. You are a manufacturer of the automatic car headlight sensors for luxurious car models. Then your potential market could be $1 million.

4. Geographic Location: Next, you need to concentrate on geographic location. Which is the ideal location to sell your product, service, or solution? Is it the USA, Global, or Asia? Carefully think about the location and then move ahead.

5. Coming to Pricing: How do you know what is the price of your product? How do you work on the critical assumption? If your price calculation is wrong, then it’s sure that your TAM calculated is also inaccurate.

For more information, check out the article on- How to calculate your product price?

TAM is calculated based on Customers and Price. When you talk about the customers, these are real people who are going to use your product. Be very careful about your genuine potential buyers.

Let’s list out parameters to calculate the TAM.

1.Country/Location: It is necessary to know where your ideal buyers are located- are they globally or in the United States, Asia, Europe, or anywhere. Defining the country or location parameters before you start with the TAM calculation will help you to study the market and locate your potential customers.

2. Industry:  It is always better to define your industry. Or in other words, in which industry you wish to sell your product. For example – if you have software or plugin that simplifies and enables Core Banking Software. The preferable industry for your product to sell will be Banking.

Parameters to calculate TAM
Parameters to calculate TAM

3. Company Size: The company size is defined on the bases of the number of employees and the average annual revenue.

    • Size: Companies are classified into start-ups, small-medium enterprises, or large enterprises. Why does it matter? You gain knowledge whether your product is made for Start-ups or SME or enterprise-grade level. Additionally, you can understand where your competitors stand in the market. Without a solid grasp on company size, you will endanger the business’ throughout the product’s life cycle.
    • Revenue: This is another critical parameter to consider at the time of calculating TAM. It gives an idea about what type of potential buyer you are looking for. To define your product price, this step becomes too crucial. Here, as a sales rep, you should understand how big the company is with respect to the annual revenue generated.

Let’s consider two scenarios:

In scenario 1, if your product is suitable for start-ups or SMEs, then the product price is set depending on the usage. The usage will be less say- 10 people of the company or up to 100 people. Here, your ideal buyers are the people who look for the agility, affordability, and quick ROI of your product.

In scenario 2, In a large enterprise, your product or services should be according to enterprise standards. It should be scalable & robust. It should be compliant with stringent enterprise policies covering security, privacy, and breach norms.

When you are fixing the price for your product, considering the above two scenarios becomes mandatory. Here, as a business owner, decide whether your product worth a 99 cent or $99 or more?

4. Hiring Area: In this parameter, you can understand what kind of positions are open within the potential company. For example- if ACME Corp. company is looking out to fulfill the accounts payable position and you have a software or product that can automate the same task. The company can be your potential lead. In the same manner, you can look for the hiring areas within a particular domain or company.

Hiring Areas Parameter

5. Technology: Technology parameter plays a significant role. Here, as a sales representative, you are looking for leads in a specific technology domain. These leads require a technology-based product or service.

Let’s take an example of the technology filter. You have a product or software, especially for data security and data breach. So, potential customers might be companies using Cloud Networking, Cloud Connectivity, Cloud Protocol, etc.

Technology Parameter

6. Operating Systems: Moving ahead in the parameter filters, Operating Systems also a crucial part for deriving your TAM. Applying this filter, you can understand the demand for the type of operating systems used by potential leads.

So, let’s take an example if you have software or plugin that is operating on cross-platform or Apple iOS OS or Linux. Then your potential customers will be the people working with Cross-Platform, Apple iOS, or Linux.

Operating Systems Parameter

7. Programming Languages: A programming language is the last but not the least parameter to calculate your TAM. This parameter helps you to understand potential companies using which type of programming language.

With the same example, you have software or framework to accelerate development on Java or Python, so the potential customers will be companies using these programming languages or doing software development using the same.

Programming Languages Parameter

After applying specific filters, your sales reps will have a detailed Total Addressable Market analysis report.

Total Addressable Market analysis report for the selected industries

In the above image, a sales executive can see the market in the USA for the Industries you have selected.

Comparison for company size and revenue opportunity

Additionally, you can compare company size and revenue opportunities that you can grab.

Wrapping up

Working on the total addressable market correctly; it will allow investors and entrepreneurs to get an understanding of the potential market and plot a landscape of the competitive market dynamics. With Total Addressable Market analysis, you can:

  • Tackle the enormous market. Furthermore, you can dive deep into the niche market with regards to your product, service or solution
  • Identify major players of the market
  • Analyze the entire market in a few clicks with a simplified way

When you leverage technology-based tools, it will help you to analyze the potential market. Here are a few benefits that you can have:

  • More accurate market sizing than manual work, saving precious time and resource effort
  • Market insights on a variety of vital signals including competitors too
  • It helps to make more informed decisions, increased operational efficiency

With a good knowledge of TAM, can help start-ups, SMEs, and large enterprises develop accurate sales pitches. They can bring up confidence in investors and stakeholders for the product and services to be launched in the market. TAM Calculator allows your sales and marketing team to identify your potential buyer, prioritize the right market, and find leads that generate revenue faster.

Learn how we can help you to identify your market with the robust AI-enabled suite by defining your Total Addressable Market and effectuate more revenue!

Total Addressable market