How to find your Total Addressable Market ( TAM)
- Dave Banerjee
- Dec 23, 2024
- 3 min read
Updated: Dec 27, 2024
Startups often face unique challenges in their early stages of growth. Limited resources, intense competition, and uncertainty in the market can make it difficult to gain traction and scale rapidly. However, with the right strategies and execution, startups can overcome these hurdles and achieve significant growth. One such important metric businesses can implement is finding Total Addressable Market (TAM).
Understanding your Total Addressable Market (TAM) is crucial for B2B SaaS companies. Total Addressable Market (TAM) can be defined as the maximum potential revenue a company can generate by selling a product or service to its entire target market. In simple words, it's the most possible revenue a product/ service can generate. TAM is calculated simply by understanding the total market size with the estimated market share for your business. (TAM = Total market size * Your estimated market share.)
When calculating TAM for B2B SaaS companies, several key factors must be considered. These include the overall size of the market, the specific segment of the market the company targets, the percentage of that market already using similar products, the average price of the SaaS product, the cost of acquiring new customers, and the total revenue each customer generates over their lifetime. By understanding these factors, businesses can more accurately assess their potential market and make informed strategic decisions.
Let's say we have a B2B SaaS product specially for Fintech companies, so we need to:
Identify the total market size: Based on industry reports and forecasts, the company estimates that the global fintech market is expected to reach $15 billion by 2025.
Estimate market share: Considering the company believes its target market is 3% of the global fintech market with its product.
Calculate TAM: $15 billion * 3% = $450 million.
Therefore, the TAM for the fintech SaaS product would be $450 million.
While the importance of the Total Addressable Market (TAM) is clear, accurately calculating it can be a complex task due to the challenge of finding reliable and up-to-date data. To streamline this process, businesses can leverage external tools like Statista, IBISWorld, G2 Crowd, and Nielsen. These platforms provide valuable industry information, market data, and consumer insights, enabling automated TAM calculations and freeing up time for strategic planning and execution.
TAM, or Total Addressable Market actually helps businesses to communicate their market potential to key stakeholders. It demonstrates the scale of the opportunity,and informs decision-making. By understanding the TAM, businesses can attract investors, optimize resource allocation, and develop effective marketing and sales strategies to drive growth and maximize value.
Calculating TAM isn't just about finding an accurate figure; it's also about considering the competitive landscape. While TAM is essential, it's not without challenges. The market is dynamic, influenced by technological advancements, shifting customer needs, and competitive pressures. Companies often face challenges in estimating market size and penetration due to data limitations and varying information. Additionally, factors like new product launches and changes in competitor strategies can significantly impact the market.
To conclude, the path to market success isn't linear, it's a dynamic process requiring continuous adaptation and refinement. By leveraging a combination of primary and secondary research, data-driven insights, and strategic analysis, businesses can gain a deeper understanding of their total addressable market. This knowledge empowers them to tailor marketing strategies, optimize resource allocation, and make informed decisions that drive substantial growth. For startups, calculating TAM and understanding the market-sizing can not just be a part of the plan, it is the turning point in their business.
By Dimpi Singhal, Partner Manager
This blog is written and maintained by Dimpi Singhal, an independent contributor. The views and opinions expressed in this blog are solely those of the author and do not necessarily reflect the views or positions of Brewra Ventures. This blog may also contain statistics and examples sourced from other websites and is for informational purposes only.
