TAM: Basic Understanding of Total Addressable Market for SEO
Total Addressable Market – What Is It?
TAM stands for Total Addressable Market and is the new buzzword for the business kingdom. Unless they are patent, most companies cannot apprehend the available market share for their products and services. The total addressable market, also called the total available market, refers to a calculation of an overall revenue opportunity available to a product or a service in a specific market.
TAM helps determine the finances and degree of effort one should put into their business line. Adequate knowledge of estimated throughputs and capital will allow them to grow their business opportunities by prioritizing specific products and customer handling segments. Even with few competitors for a particular brand, it is extremely difficult to convince an entire market to acquire their product or service.
TAM is, however, very valuable since brands may use it to predict and evaluate the potential for growing and expanding in a particular industry over their competitors. The total addressable market is more like an exercise. It is a creative form of market sizing that allows businesses to evolve the revenue opportunities offered through their product outcomes.
The total addressable market, i.e., TAM has become an essential measure and a more innovative process for calculating the availability of market shares because the new markets are evolving at an increased speed. Also, TAM plays a key role in acquiring customer strategy and your SEO Company In Surat. Although the total addressable market is completely different from your total market availability, your total market is your highest prospective chance if no competitors with differing selling points exist.
One should note that TAM is just a fraction of the total market availability and is rather associated with your customer personas. Continue reading to deeply understand the total addressable market to vanish the blurred lines appearing in your market.
Methods to calculate Total Addressable Market
The total addressable market is a measuring expression for the total number of sales expected annually within a specific market. There are 3 primary methods to determine the total addressable market calculation: the top-down method, bottom-up, and value theory. Let’s discuss them one by one individually for better insight.
Top-Down Approach
Total market addressability in the top-down analysis is evaluated using industry data, market surveys, and case studies. However, data and information from industry organizations are not always up to the mark and may not always give proper light to your market specifications. You might want to hire a TMA analysis meaning a total market approach counseling firm, to conduct a study customized to your specific requirements.
The approach starts with the top set of macro data being chipped down to find a subdivision. The only advantage of this approach is that accurate and precise statistics can be evolved for econometrics data. This method is represented as an inverted pyramid where the end part states the company’s consumers.
Bottom-Up Approach
Total market addressability in the bottom-up approach is more accurate and precise. The technique uses data based on previous sales and pricing or first-party information to estimate revenue and market growth. This method is more reliable than top-down analysis because it depends on primary market research to calculate the TAM estimations.
The major advantage of using a bottom-up approach is that the business can easily segregate certain relevant customer segments and drop out the ones that are irrelevant or out of context. A brand that relies on data derived from its researches and case studies would have a TAM guide that is more relevant and accurate rather than depending on arguable data.
Value Theory Approach
The value theory approach is more on how much value consumers acquire from your products and how much they are willing to purchase in the near future for the same product and services. Calculating TAM in the value theory approach is based on evaluating the value delivered by the products to specific consumers. For products and services that can evolve in the market in the near future or that can provide value to different consumers, the value theory may be the best alternative.
With the help of a value theory analysis, businesses can easily assess how much an end-user would be willing to pay for an already existing product. This method is an excellent option for calculating the TAM for businesses launching new features, updating existing products, or bringing fresh products into the light.
Total Addressable Market Calculation
The total addressable market is calculated to estimate a specific market’s potential for growth, and the defined formula for determining your TAM is as follows:
Prospective Number of users * Competitive position = TAM.’
Suppose the estimated number of software users in the world is, let’s say, 10,000. But, if your competitive position to sell software is in India, where people using software is 2000, then your TAM is approximately 2000.
The above example is just for understanding the TAM concept.
The total addressable market is one of the most important measures that startups and entrepreneurs should use to estimate the potential scale of the market in relation to total sales and revenue opportunities. TAM helps you break down figures into a manageable level by segregating the data accurately and precisely.
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