Definition
TAM, or Total Addressable Market, is the maximum revenue a business could generate by selling its product or service to every possible customer in a specific market. It provides a high-level starting point for evaluating market opportunity, useful for businesses seeking growth or investment. Understanding TAM helps companies set realistic targets and shape their competitive approach.
Why Use
- Identifies full growth potential in new or existing markets.
- Guides resource allocation and strategic priority setting.
- Supports investment decisions with evidence-based data.
- Informs pricing and go-to-market plans.
Core Concepts
- Total Addressable Market (TAM) as ultimate revenue ceiling.
- Serviceable Available Market (SAM) is a narrower segment TAM.
- Serviceable Obtainable Market (SOM) shows what is realistically reachable.
- Market segmentation splits TAM into actionable target groups.
- Ideal Customer Profile (ICP) informs which market slices are valuable.
Examples
For a SaaS tool priced at £50/month targeting 10,000 companies: TAM = £50 x 12 x 10,000 = £6,000,000 per year. This reflects total annual market potential, not expected revenue.
Common Pitfalls
- Confusing TAM with achievable market share or revenue.
- Overestimating TAM by ignoring market constraints.
- Failing to update TAM as conditions or data change.
See Also
For related concepts, explore Serviceable Available Market (SAM), Serviceable Obtainable Market (SOM), market segmentation, and Ideal Customer Profile (ICP).
