Total addressable market (TAM) is the yearly revenue a product could earn if every customer that could use it bought it: the number of potential buyers multiplied by what each would pay in a year. It sets the ceiling of an opportunity, before competition, reach and price limit what a seller can win.
How it is calculated
The method you can check step by step is bottom-up: count the companies that fit your ideal customer profile, then multiply by the yearly contract value. Acme Robotics (illustrative) sells warehouse software to logistics companies with 200 to 1,000 employees. If 6,000 companies fit and a contract is worth 24,000 US dollars a year, its TAM is 144 million US dollars. Change one input and the result moves in a way you can trace, which a share taken from a published market figure does not allow.
Where the count goes wrong
The count is the part data can settle, and it is where errors hide. A list that includes companies too small to buy, or that counts one group's many websites as many companies, inflates the figure. A list that misses companies its source does not cover deflates it. State the filters (industry, size, country, technology) and the date of the count, so the figure can be repeated and challenged.
Company counts in Fokals data
Fokals supplies the counts. Technology Stack lists the recognised technologies seen on each company website, so a count of companies by technology sizes the buyers who already run a tool that a product replaces or complements. Employee Headcount gives stated headcount over time for a size filter, and Market Series publishes weekly counts and rates by industry, country and size band. You multiply by your own price per customer. The guide to sizing a market with technographic counts works through the build on the marketing stack dataset.
Related terms
TAM is narrowed by an ideal customer profile and checked against an installed base. Its counts are only as good as the data coverage behind them, and firmographic data supplies the filters.
Frequently asked questions
What is the difference between TAM, SAM and SOM?
TAM is the revenue available if every possible customer bought. The serviceable addressable market (SAM) is the part of it that the product, the sales model and the regions served can reach today. The serviceable obtainable market (SOM) is the share of SAM a seller can win in a given period, given competition and sales capacity. Each figure is smaller than the last, and a plan should state all three with the assumptions behind them.
Should you size a market top-down or bottom-up?
Do both and compare. Top-down starts from a published market figure and takes a share of it, which is quick but hides its assumptions. Bottom-up builds from a count of companies and a price, so each input can be tested. When the two differ widely, one input is wrong, and finding which one is the useful result. For a decision about where to sell, the bottom-up figure is the one you can defend.
What share of TAM can a company realistically win?
No share is realistic without a route to it, and taking one percent of a large market is a common error. Build the obtainable figure from capacity instead: the number of salespeople, multiplied by the deals each closes in a year, multiplied by the average deal value. If that product is far below the share you assumed, the plan needs more capacity or a smaller promise.