What Is Total Addressable Market and How Does It Work?
Want to know your Total Addressable Market? You Need to Read This First
Do you know your market size? Knowing market size can help you find out how big is your business relative to the market. As a business owner, you can even understand how much potential it has. It is a tricky concept to understand, and as a business owner, you can’t prepare beforehand.
Market sizing is the process to estimate the market potential for your product or service. This concept is the most crucial part for companies looking to launch a new product or service in the market. With the help of market research sources and database, below are a few points highlighted to help you define:
- The potential size of a market
- Competitors in the market by category
- Composition and profile of a target customer
- Products and services available in market
- Significant trends in the market
It is easy to understand the market sizing concept but hard to accomplish. Many of your sales reps get stuck with establishing market boundaries. Or the sales team defines the market before getting hands-on the market analysis. Here TAM- Total Addressable Market concept comes to picture.
1. What is TAM all about?
Here is the question- Is your business aligned with the size of the market? Whatever business you are into, TAM is the first crucial step to forecast a realistic potential revenue for your product or service. We tack together a guide that will educate you on what the Total Addressable Market is. Why is it so necessary to understand TAM? Will it be helpful for you to sell your products or services in the market?
TOTAL ADDRESSABLE MARKET– TAM refers to the total market that you are attacking for your product or service. It is about the entire opportunity to generate more revenue. In other words, how many people would want/need your product or services? How large is your market in terms of dollars or units?
As a business owner or investor, you need to understand the TAM pie in detail. The most burning question- Is your product worth a 99 cent or $99 or more? How big is your slice?
2. Why is it necessary?
Before we move ahead in this blog, understand why your sales team fails to grab the market:
- Goals created by your sales team with the context of opportunity available is impossible to achieve
- Failure to understand the scale of the addressable market for your product or service leading to revenue generation blunder
Investors and businesses need to know the revenue opportunity generated by selling their product or service in a specific market. Using the addressable market appropriately allows the sales and marketing team to plan efficiently, set goals, and measure the progress accordingly.
In other words, every single business needs to find the value in their product or solution, start using TAM. With it, you can estimate how big would the market be? So, it helps you to realize there is plenty of room to generate revenue and grow business.
Defining your Market:
Often enterprises or investors look for the market size for product or service you are launching in terms of geographical area. Let’s take the example of Color LED Lights. So, if we want to calculate TAM, our focus is on the total market for LED lights. The second step is to find out the total Color LED market to sell the product. Moving ahead, we focus on which realistic market we can obtain, including competitors, countries, trends, demands, sales & distribution channels, and other marketing influences.
Before you start with TAM, below are a few points to be noted to determine what product and service you include in your TAM:
- Narrow down your geographical boundaries.
- Are you looking for historic market sizing?
- Are you looking for future predictions?
- Define the filters that you want to include in market size estimation
Importance of TAM:
- Estimating TAM is the first step, followed by every entrepreneur to start up their business for their product
- It is essential to estimate TAM objective and allocate a suitable market with the possibility of growing opportunities
- Potential investors often look for markets with high TAM values, which ultimately increase in demand for your products and services
- A few other factors, such as competition level, accessibility of resources, etc. can affect the performance of the company
- Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM) are critical indicators to measure if the market is worth investing in or not
Here is the difference between TAM, SAM, and SOM
Total Addressable Market is bound to make an impact on your business.
To define your TAM accurately, it requires different types of data points and filters. It may include company size, location, revenue, hiring area, technology landscape, the operating system used by your target customers. Identifying the data points which matters for your business and correctly analyzing them helps you build a solid foundation for your category of products or services –
- Create equitable sales territories
- Prioritize your ideal buyer and pursue
- Reach out your potential buyer with customized pitch, email campaigns, and outbound initiatives
TAM backed by Tech-Intelligence
To build your TAM correctly, the sales reps must go through existing accounts or create a systematic structure in your CRM. It helps the sales reps easily select and prioritize the ideal customer account, providing the highest revenue opportunities.
3. Advantages of the TAM
TAM is the first exercise to understand revenue opportunities in the market. It also offers secondary advantages such as:
- Determine future product roadmap and evolution
- Offers a way to assessing the product for market fit
- Shows accuracy and conviction to attract Investors
- Puts the early line of sight on competitors
Your Sales and Marketing Teams play an influential role in developing target accounts. Defining the TAM correctly will not only increase your sales opportunities but enables these team to work in sync to generate revenue.
With the best TAM tool, it allows your sales and marketing team to define their ideal customer profile. It is easy for sales reps to access the customer profile and concentrate on the accounts offering the most potential value.
With a good knowledge of TAM, start-ups and enterprises can achieve the sales goals. They can inculcate confidence in investors. TAM Calculator allows your sales and marketing team to identify your ideal buyer, prioritize the right market, and find accounts that generate revenue faster.
Learn how we can help you to identify your market with the robust AI-enabled suite by defining your TAM and effectuate more revenue!