Total Addressable Market

Last updated: March 22, 2024

What Does Total Addressable Market Mean?

Total addressable market (TAM) is the overall revenue opportunity available or foreseen for a specific product or service, taking into account the future expansion scenarios.

Assessing the total addressable market is crucial for startups as well as existing enterprises because this estimate enables them to prioritize the available markets, customer segments, products and business opportunities by comparing the potential for revenue generation and profits. Finally, it leads to a viable value proposition offering to potential investors and buyers of businesses.

Total adressable market is also known as global total market, even if the proposed business is unable to serve some parts of this market.


Divestopedia Explains Total Addressable Market

To develop a credible value proposition, you need to estimate the available market size, scale of investment and timing, the size of overall market, the competition, and the growth expected. Calculating TAM is the first step in building the value proposition.

The TAM calculation is indicative of the overall revenue generation potential of a specific product or service, inclusive of the market outside the reach of the present or proposed firm. It is important to start with this estimate because it helps determine the size of the available market for which the firm can reasonably compete.

Steps involved in sizing the total addressable market include:

  • Collecting data from sources such as government reports, research reports, journals
  • Gathering estimates and opinions from salesmen as well as surveys
  • Compiling figures from competitor publications
  • Scanning trade association reports and professional bodies

Factors such as geography, firm resources, logistics and capacity, and regulatory constrains are taken into account when determining the addressable and available markets as well as competitor market size. Others who are competing for the same markets and specific segments are also derived to finalize the value proposition document.


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