09. TAM Review

Total Addressable Market Review

As you think about your competition and the opportunities for positioning your product, you'll want to have a good grasp on the Total Addressable Market for your product. To help you review this critical skill we brought back Alex King, the Instructor from the Product Strategy course to review TAM.

Things to Remember About TAM

• TAM is a measure of the revenue opportunity for a product by estimating the size of the entire market

• A larger TAM indicates a larger opportunity, with more demand for a particular product, but there are many other factors that will affect your product's success, including the strength of the competition.

How to Calculate TAM

TAM = Average revenue per user X total number of potential users in the market

There are several approaches to calculating TAM:

• Top Down
  • You start with a high level view of the economy, and then narrow that down based on factors like demographics. For example, you usually will start will everyone in the world and narrow down that audience to people who are interested in your product.
• Bottoms Up
  • This involves using known data points that you have (data from early customers and sales) that you could extrapolate to represent a larger market opportunity. For example, if you are already selling a product in one region and were considering selling it globally.
• Value Theory
  • Generally used for new product categories where you don’t have much information to base estimates on. This involves conducting market research to understand how much people would pay for your product and how many potential customers you have.

Additional Reading

Read more about TAM here:

• How to calculate your total addressable market and make a great TAM slide for investors