A total addressable market is a concept in business strategy and market analysis. It refers to the overall revenue opportunity available for a product or service within a defined market.
TAM represents the total revenue opportunity available in a specific market segment. It reflects the maximum potential revenue that could be generated if a company achieved 100% market share within that segment. Segmentation can be based on factors such as demographics, geographic location, industry verticals, or customer behaviour.
Calculating TAM involves multiplying the number of potential customers within a market segment by the average revenue that each customer is expected to generate. This can be done using various approaches, including top-down analysis, bottom-up analysis, and value-based analysis.
While TAM provides valuable insights, it’s important to recognise its limitations. TAM represents the theoretical maximum market opportunity and may not account for factors such as competition, market dynamics, or economic conditions.
Let’s consider an example of TAM for a company that produces electric scooters targeting urban commuters in a particular city.
TAM = Number of potential customers x Average annual spending per customer
TAM = 100,000 customers x €500 = €50,000,000
The total addressable market for electric scooters in this city is estimated to be €50 million annually. This represents the maximum revenue opportunity if the company were to capture 100% market share.
We work with world class partners to help us support businesses with finance
UK
IRE
AU
CA
US
ZA
yet? Register here!