What Is Total Addressable Market (TAM) and How to Calculate It

What Is Total Addressable Market?

Total Addressable Market (TAM), also referred to as total available market, is a way for companies to determine how much money they could make if they sold their product or service to every possible customer in a specific market.

TAM helps businesses understand the maximum revenue they could generate if they had 100% market share.

For example, say a company produces organic energy bars.

Its TAM would be the total potential revenue it could generate by selling its products to everyone interested in buying organic energy bars.

TAM isn’t a revenue projection. Instead, it’s a way for companies to understand the current marketplace’s size.

While capturing 100% of the market may not be feasible, understanding TAM helps businesses prioritize specific products and customer segments. All while assessing their potential return on investment.

Most companies also assess the number of customers they can realistically target with metrics known as Serviceable Addressable Market or Serviceable Available Market (SAM) and Serviceable Obtainable Market or Share of Market (SOM)

The Differences between TAM, SAM, and SOM

TAM, SAM, and SOM are three distinct concepts representing various market subsets:

• TAM is the total demand for a specific product or service within a given market
• SAM is the portion of the TAM that a company can target and serve realistically
• SOM is the percentage of the market that a company currently captures or intends to capture...