What is TAM?
TAM, or total addressable market, is the total revenue available if a product or service won every possible customer in its market. It sets the upper limit of the opportunity and helps judge whether a market is large enough.
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How TAM is estimated
A top-down estimate starts with industry data and narrows it to your segment. A bottom-up estimate multiplies the number of potential customers by what each would pay per year, and many find it more reliable.
Either way, write down your assumptions so others can check the numbers.
TAM, SAM, and SOM
SAM, the serviceable addressable market, is the part of TAM you can reach with your product and channels. SOM, the serviceable obtainable market, is the share you can realistically win in the near term.
Plans based on SOM tend to be more grounded than those based on the full TAM.
How marketers use TAM
TAM helps set growth targets, choose between markets, and decide how much to invest. A larger market may justify higher spending, and a small one may point to a need to expand.
Common questions
What does TAM stand for?
TAM stands for total addressable market. It's the full demand for a product or service in a market, in revenue terms.
How do you calculate TAM?
Bottom-up, multiply the number of potential customers by the average annual revenue per customer. Top-down, start from an industry total and narrow it with your criteria.
What is the difference between TAM and market share?
TAM is the size of the whole opportunity. Market share is the portion of it, or of current sales, that your business holds.
Why do investors and planners care about TAM?
It shows whether a market is large enough to support growth. A business can't grow beyond the limits of its market for long.
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