Market Analysis 101: Assessing Market Size by Recognizing Total Addressable Market (TAM)
As a product manager, assessing TAM (Total Addressable Market) is a crucial step in determining the potential revenue opportunity for your product or service. TAM represents the maximum revenue opportunity if you were to capture 100% of the market share. Accurately assessing TAM can help you make informed decisions about resource allocation, investment, and go-to-market strategy. Here are some steps to follow to assess TAM :
Identify your target market: The first step in assessing TAM is to identify the market or customer segment that your product or service is targeting. This might include specific industries, geographies, customer personas, or any other relevant criteria associated with that target market. The more specific you can be in identifying your target market, the more accurate your TAM estimate will be.
Determine the market size: Once you've identified your target market, the next step is to determine the size of that market. There are several methods you can use to estimate market size, including top-down analysis, bottom-up analysis, addressable market analysis, and value-based pricing analysis. Each method has its strengths and weaknesses, so it's a good idea to use multiple methods and assumptions to arrive at a range of estimates.
Identify your market share: After estimating the size of the market, the next step is to estimate the percentage of the market share that your product or service is likely to capture. This might depend on factors such as customer need, competition, pricing, and marketing strategy. You can use market research, customer surveys, and competitive analysis to help inform your estimate.
Calculate TAM: To calculate TAM, multiply the estimated market size by your estimated market share. For example, if you estimate that the market size is $1 billion and your product is likely to capture 5% of the market share, then your TAM would be $50 million.
Continually reassess TAM: TAM is not a fixed number and can change over time due to factors such as competition, technology advancements, and changes in customer behavior. Therefore, it's important to continually reassess TAM and update your estimates as new information becomes available.
Assessing the total addressable market is a critical step in developing and launching a successful product or service and is often a requirement for building out the market analysis portion of your business. Definitely spend time going through this exercise as a key component to your market analysis.
