Total Addressable Market (TAM) :

How to Calculate TAM for a Startup

To calculate TAM for a startup, you need to follow these steps:

1. Identify the Target Market

Start by identifying your startup's target market. This might be a specific industry, demographic, or geographic area.

2. Estimate the Market Size

Use industry research, reports, and other sources to estimate the size of the target market. This might include the number of potential customers, their buying power, and their demand for the product or service.

3. Calculate TAM

Multiply the estimated market size by the average price per unit of your product or service. This will give you an estimate of the TAM for your startup.

For example, if your startup targets a market of 1,000,000 potential customers and the average price per unit is $100, then the TAM would be:

TAM = 1,000,000 customers x $100 = $100,000,000

What is a Good Total Addressable Market for a Startup?

A good TAM for a startup depends on various factors, including the startup's business model, target market, and competitive landscape. In general, a larger TAM is more attractive, as it represents a larger revenue opportunity. However, it's also important to consider the market's growth potential, the startup's ability to capture market share, and the competition.

TAM vs SOM vs SAM

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  TAM (Total Addressable Market)

  TAM represents the total market demand for a specific product or service. It includes all potential customers who have a need for the product or service, regardless of whether they are currently using it.

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  SOM (Serviceable Obtainable Market)

  SOM represents the portion of the TAM that a startup can realistically target and capture. It is a subset of the TAM that takes into account factors such as the startup's market entry strategy, resources, and competitive landscape.

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  SAM (Serviceable Available Market)

  SAM represents the portion of the TAM that is currently being served by existing products or services. It is a subset of the TAM that includes only customers who are currently using or purchasing similar products or services.

What is a Good Size SOM?

A good size SOM depends on the startup's resources, competitive landscape, and market entry strategy. In general, a larger SOM is more attractive, as it represents a larger revenue opportunity. However, it's also important to consider the startup's ability to capture market share, the competition, and the potential for growth. A good size SOM is one that the startup can realistically target and capture based on its capabilities and market dynamics.

Lets Understand with an example :

Harsh has started a startup that has developed a new fitness app for busy professionals. The app offers personalized workout plans, nutrition tracking, and progress monitoring.

His startup targets a market of busy professionals aged 25-45 who want to stay fit but struggle to find time for exercise. He estimates that there are 10 million potential customers in this target market.

The average price for the app's subscription is $20 per month. Based on this, he calculates the TAM as follows:

TAM = 10,000,000 potential customers x $20 = $200,000,000

However, he knows that not all potential customers will be interested in the app or willing to pay for it. He estimates that only about 20% of the TAM is serviceable and obtainable for his startup, resulting in an SOM of $40,000,000.

He also knows that there are already several fitness apps on the market, so he estimates that the SOM represents about 40% of the SAM. This means that the SOM represents a portion of the TAM that is currently being served by existing products.

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