Calculating your Total Addressable Market, or TAM, is a crucial step in the GTM journey for a multitude of reasons. While the primary purpose is to understand your revenue opportunity, there are a host of other benefits that can impact your business long-term.
In this article, we’ll quickly review the basics of TAM, then discuss four reasons why nailing down your TAM is a business imperative and how to add technology intelligence to maximize success.
The Basics Of TAM
As discussed in our Quick Guide to Mastering Your TAM, Total Addressable Market, sometimes called Total Available Market, is the possible universe of companies that could buy your product or service.
The three most effective ways to calculate your TAM:
- Top-down – Utilize industry data and qualitative external sources like Gartner or Forrester to estimate opportunity size
- Bottom-up – Using your own first-party sales and pricing data from your business to extrapolate the total revenue opportunity in the market
- Value theory – Take the estimated value a customer receives from your product and estimate how much they’ll be willing to pay for it in the future
Why Nailing Your TAM Is Crucial
By defining your TAM the business can have confidence that they have a view of the total scope of the market opportunity. Without a TAM, it’s difficult to effectively prioritize customers and assess revenue opportunities.
Once you understand the size and shape of your market, you can break your TAM down into sub-markets, then sort those markets by priority and size.
Here are the reasons why building your TAM properly with accurate data is important:
1. It creates a unified foundation
Defining your TAM requires your organization to think through data systematically. Diving deeper into your market and attaining a comprehensive view of your customer base (both current and future) enables the organization to think about prioritization holistically.
Leadership teams can use this deep analysis to illustrate how they’re thinking about the market, product-market fit, and roadmap to investors and stakeholders.
2. It broadens consideration beyond current markets
Defining a TAM forces your organization to think beyond where current sales are happening. For example, some companies consider ideas that could help grow the total market or even develop an emerging market.
Does your product or service have the potential to disrupt an existing market? Nailing down your TAM can aid in financial planning and forecasting when you’re attempting to move into unexplored markets.
3. It accelerates go-to-market strategies
When TAM is calculated and utilized properly, it can help guide the entire GTM strategy: from segmentation and distribution to sales and marketing.
4. It brings a deeper understanding of ICPs
Getting your TAM right also helps you better understand your Ideal Customer Profile, or ICP. This brings about many benefits as well, including:
- An actionable list of potential customers – Give your marketers and sales reps a better list of accounts that are more likely to be winnable
- Alignment between sales and marketing – Knowing who is in the target market decreases friction between teams about lead quality
- Better territory planning – Referring back to the TAM throughout the year allows you to watch certain customer segments and decide when it’s time to expand
- Keeps sales reps on track – Help your reps focus on high-potential accounts, rather than them spending time on prospects who are unlikely to convert
Using Technology Intelligence To Level Up TAM
Many different stakeholders – founders, management teams, investors, and others – use TAM models for a variety of reasons. But one thing is for sure: simply calculating TAM with a traditional approach (top-down, bottom-up, or value theory) won’t give you the most accurate TAM, which is crucial for scaling and aligning a successful company.
The best way to build an accurate, actionable, and informed TAM is to use technology intelligence from HG Insights. HG’s data-driven insights enable your team to:
- Target the highest-potential markets – Use our unique referential entity set to analyze and understand the competitive, technology, and financial dynamics of markets worldwide
- Uncover opportunities for competitor displacement – Gain valuable insights into the installed base of your competitors, spot the markets with potential for displacement, and identify potential partners with complementary solutions
- Transform budget into revenue – Build strategies that are data-driven to ensure optimal resource allocation
- Discover opportunities across the globe – Efficiently identify new potential markets and calculate their revenue potential based on the budgets and technology stacks of the companies who operate there
Master Your TAM With The Holy Grail Of Data-Driven Insights
HG is the Holy Grail of data-driven insights. Without insight, data is just noise; and without data, your TAM won’t be as accurate or helpful for sales and marketing leaders.
