Total Addressable Market (TAM) Definitions and Actionable Tips
Growth Orbit Insights
The terms “TAM” and “SAM” are often used, but sometimes misunderstood. This post provides definitions, examples, and simple instructions on how to use these lead generation terms.
by Steve Schilling
Total Addressable Market (TAM): Definitions and Actionable Tips
TAM is a metric that reveals the maximum potential of a product or service. It answers the question, “If every person who could possibly find value in this product purchases it, how big would the market be?”
You probably already know that you shouldn’t rely on TAM to predict your actual future revenue. If you do, you’ll likely be disappointed. However, even those lofty figures can help you realize a more accurate market share.
The point of TAM is to set realistic sales and revenue targets, but it also helps identify new market opportunities and allows businesses to make strategic decisions about how to grow their business. Keep reading to learn how calculating the Total Addressable Market can help you accomplish your business goals.
Let’s begin with a definition
Demand generation refers to the process of creating and promoting a company’s products or services to a target audience in order to generate interest and demand. This can be achieved through various means such as marketing campaigns, social media outreach, content marketing or events.
The goal of demand generation is to increase brand awareness and attract potential customers to the company’s website or other channels.
What is lead gen?
Total Addressable Market (TAM) is a metric that demonstrates the entire market opportunity of a given product or service. The figure helps businesses of all sizes define, size and begin to understand their market potential.
TAM factors in the entire market, both existing and all potential customers, including all geographic regions and market segments.
Understanding TAM is important for conducting target market research. Knowing your TAM is key for businesses as it helps to identify market opportunities, set sales and revenue targets, and make strategic decisions about how to focus sales and marketing effort to grow their business.
TAM helps businesses increase their market share, generate more revenue, and grow.
Total Addressable Market (TAM) vs Serviceable Available Market (SAM)
It’s important to note that the TAM is not the same as the Serviceable Available Market (SAM) or the Service Obtainable Market (SOM). TAM includes all potential customers of the business, and the other two the are subsets of the TAM, representing the segment that can realistically serve (SAM) or the segment that a business can strive to eventually capture (SOM).
Why TAM is important
One of the main reasons why TAM is so important is that it helps to set realistic sales and revenue targets. By understanding the size of the market, a business can set goals that are achievable and aligned with the potential of the market and ultimately track the progress and success of sales and marketing engagement.
This is particularly important for startups and small businesses as it helps them to understand the potential for growth and make strategic decisions about how to allocate resources.
TAM is also important for businesses because it helps to identify market opportunities. By understanding the size and potential of the market a business can identify areas where there is a high demand for their products or services and focus their efforts on these areas. This can help businesses increase their market share, generate more revenue, and grow.
Another key benefit of understanding TAM, and more importantly the subsegments that make up the TAM, is that it allows businesses to make strategic decisions about where to focus sales and marketing efforts, and how to grow their business. Not all segments of a TAM are equal.
For example, if a business identifies a large TAM for a specific product or service, that includes a number of large, highly valued subsegments they may decide to invest more resources into the development and marketing of that product or service. On the other hand, if a business identifies a small TAM for a product or service, they may decide to focus their efforts on other areas of the business.
It’s important to note that TAM is not a static metric, and it can change over time. Factors such as changes in technology, new market entrants or shifts in business buying behavior can all impact the size and potential of a market.
For this reason, businesses should regularly review their TAM to ensure that they are aligned with the current market trends.
Defining and identifying your Total Addressable Market (TAM) is crucial for making strategic decisions and growing your business.
Even more important? Regularly reviewing and updating your TAM to make sure your business is aligned with current market trends. TAM helps you understand the potential for growth and make informed decisions on how to allocate resources.
To learn more and about defining your TAM and how to move from TAM to Lead Generation Success, contact Growth Orbit today. Call (770) 881-8408 or contact us online.