Creating an accurate total addressable market is essential for your entire go-to-market program. Your TAM indicates the breadth and depth of your opportunities. Without it, you won’t know what customers you should be targeting, or how much potential revenue they can generate for your business.
By knowing the size and shape of the market you're selling to, you can break up your TAM into various sub-markets. Then, you and your organization can analyze which sub-markets to pursue – and which to avoid.
Building your total addressable market with accurate data is important for a few reasons:
- It lays the foundation. Your total addressable market forces you to think through data systematically. While pushing deeper into your market research and understanding potential customers better, it shows that you’ve taken time to determine your priorities. Founders use this analysis to show investors and management teams how they think about their market, product-market fit, and product roadmap.
- It propels your go-to-market strategy. When done well, understanding your TAM guides your business’s segmentation, distribution, sales, and marketing strategy.
- It enables thinking beyond current markets. While establishing a TAM, some companies will answer questions about growing the total market or developing an emerging market. Will your technology or service disrupt a pre-existing industry? Calculating a TAM helps you with financial planning and sales forecasting in unchartered territory.
Founders, management teams, and investors use TAM models for different purposes. However, the research and analytical exercise put into calculating a TAM are building blocks for segmenting customers, building a successful roadmap, and getting necessary funding.
A large total addressable market looks good to investors, but an accurate and precise TAM analysis is most beneficial for scaling a successful company.