Total Addressable Market

Question 1

Define TAM

Answer 1

TAM is the amount of annual revenue expressed
in dollars per year your business would
earn if you achieved 100% market share in your chosen market (your beachhead)

Question 2

What is top down TAM research

Answer 2

e.g. look at marketing reports no google, in libraries by big companies.

Question 3

Why is top down bad?

Answer 3

It doesn’t specify enough. End users are different, so you are likely to over-estimate your tam.

Question 4

If a market research report exists, what does that tell you?

Answer 4

Somebody’s already explored this market and opportunities have already been taken from it. (no first mover advantage)

Question 5

What is the best way to determine TAM?

Answer 5

A bottom up analysis. Determine the number of end users that fit your end user profile.

Question 6

What is a good TAM for your business?

Answer 6

Generally, I recommend a TAM between $20 million and $100
million per year.
A TAM over $1 billion raises red flags.
Your beachhead market is either not specific enough,
or there will be formidable barriers to entry.
If your TAM is less than $5 million per year,
it’s likely you haven’t found a big enough beachhead market.

Question 7

When can a low TAM work?

Answer 7

if you capture the market quickly and convincingly.
Especially if the gross margin of your product is very high.
This beachhead also needs to give you
a powerful position from which to attack better
markets quickly and efficiently.
It has to create an asset that’s enormously valuable to you
that you can monetize in other ways. (This is why freemium can work)

Question 8

How do you calculate TAM

Answer 8

Number of end users * Average Revenue per end user per year