What is Total Addressable Market (TAM)?
Nexa Consultancy | Startup & Finance Glossary
Total Addressable Market (TAM) is the total revenue opportunity that is available for a product or service if it were to achieve 100% market share. It represents the maximum size of the market a company can realistically target.
For Startups: For a startup, defining its TAM is a crucial part of the pitch to investors. It helps answer the question: "How big can this business get?". A large TAM is a prerequisite for venture capital investment, as VCs are looking for businesses that have the potential to become very large.
Calculation: TAM is often calculated using a "top-down" approach (starting with market research reports) or a "bottom-up" approach (multiplying the number of potential customers by the average revenue per customer).
Example: A company making accounting software for all small businesses in India would calculate its TAM by multiplying the total number of small businesses by the annual price of its software.