What is Total Addressable Market (TAM)?

What is Total Addressable Market (TAM)?

August 26, 2022

Your Total Addressable Market (TAM) represents the total market possible for your product or service, estimated by the market’s revenue potential. In other words, your TAM tells you how much money you could make if every company in your target audience was a customer.

Why understanding your TAM is so important

Identifying your TAM should always be the first step when building a go-to-market strategy, whether you’re just getting started as a company or if you’re considering going after a new segment. Knowing your TAM can also be beneficial in fundraising efforts by showing investors the market potential of your products or services. Over time your TAM may change based on your business goals or based on industry shifts out of your control. Regardless of where your company is in its journey, calculating your TAM is a critical step in quantifying the market opportunity.

TAM = What's your market size? How much can you make from this set of companies?

TAM vs. SAM vs. SOM

While your Target Addressable Market identifies all companies that fit your criteria, your Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM) help further narrow the universe. SAM identifies which companies you will actually be able to acquire based on your business model. SOM goes one layer deeper and looks at which companies would realistically buy your product or service, helping you set short-term growth targets. TAM is the first step, but a holistic go-to-market strategy considers all three layers.

How Total Addressable Market is calculated

To calculate your TAM, you will need to know the number of companies that fit your target criteria and your annual contract value. For example, let’s say you sell to enterprise healthcare companies. In this example, if there are 3,000 enterprise healthcare companies and your annual contract value is $25,000, your TAM would be $75 million.

TAM = total # of potential customers x annual contract value (ACV)

Challenges associated with calculating your TAM

To identify the size or number of companies that fit the target criteria, companies often look to:

  • Third-party research & research firms
  • Analysts
  • Google
  • LinkedIn
  • And more

However, each of these methods has its own challenges. Hiring a research firm or talking to analysts is likely the most comprehensive way to identify your TAM, but it’s also the most expensive (with costs ranging anywhere from $20,000 to $50,000 for custom market research). Only a small percentage of companies can afford to conduct the process this way. Additionally, if you’re in a time crunch this isn’t the best option as it can take months or longer to see the results.

Using a simple Google search is a more cost-effective method but lacks the granular data necessary to define an accurate TAM. For example, searching on Google or even LinkedIn will give you information about company size, but won’t necessarily tell you what technologies a company uses, which may be an important factor to consider in your overall TAM calculation.

Without the use of a TAM calculator, the process to define your TAM is difficult, time-consuming, and expensive. We heard from countless marketers about these difficulties and knew we could help.

Why did we build the TAM calculator and how can it help you?

We built the TAM Calculator using our existing Discovery API with the hope of solving a significant pain. Over the years many customers have asked us if we could help them calculate their TAM after attempting to do so through some of the methods mentioned above.

Knowing how important but difficult it is to build your TAM, we created the TAM Calculator, a free tool that helps you instantly generate market size and value using advanced filters and access to Clearbit's database of 44M+ companies.

We recently launched a new and improved version of the Total Addressable Market Calculator with additional attributes and more dynamic filters, making it easier than ever to identify the market potential for your product or service. Based on user research, we found that it takes multiple iterations to perfect your TAM calculation so we added the ability to see how changes to attributes like industry or employee size affect your TAM in real-time.

With the TAM calculator, you’re able to:

  • Quickly iterate on new segments to pursue
  • Instantly gut-check your Ideal Customer Profile
  • Validate market hypothesis with a few clicks
  • Create free target account lists for sales

Get started calculating your TAM

Here’s how it works in just a few steps:

1. Enter your annual contract value (ACV).

2. Choose the attributes that are most important to you. You can specify:

  • Industries
  • Employee size
  • Business model
  • Countries
  • Keywords
  • Company types
  • Tech used
  • Funding raised

3. Select “Calculate your TAM.” It’s that simple! You’ll see your results in seconds and can easily make modifications as you see fit.

Check out our page on ProductHunt to learn more and see what others are saying about the tool.

What’s next?

With your TAM in place, you’re off to the races.

Remember, though, that a TAM isn’t static. Your company and the companies around you are constantly changing. It’s important to revisit your TAM over time and especially when entering new markets or segments. For example, if you’ve historically gone after the North American market, but want to expand globally, it may be a good time to revisit your Total Addressable Market.

You also want to make sure your TAM doesn’t live in slide purgatory, but instead is at the forefront of your business strategy, helping to inform your Ideal Customer Profile (ICP). Your ICP represents the companies that are the best fit for your product or service, and that are likely to generate the most value for your business. With a clearly-defined ICP, you can activate across channels and platforms to drive more conversions and ultimately revenue.

Get started calculating your Total Addressable Market and identify your market potential in seconds.

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