Total Addressable Market: How to Define Your SaaS Growth Potential

Netflix made news in 2019 for spending an amazing $15 billion a year on content, which was a huge amount of money. What was even stranger, though? It wasn’t the biggest spender on fun things. That title went to Disney, which bought Fox and is now in a position to dominate a huge total addressable market (TAM) in the streaming wars. TAM isn’t just a buzzword; it’s the basis of growth strategies that can be scaled up, especially in SaaS. When you understand TAM, you can see how far your business can go, which competitors you should keep an eye on, and where you should put most of your efforts.

Determining TAM is important for SaaS companies to see where they can grow and how to make new products. Let’s talk about how to correctly identify your entire target market, make sure it fits with your SaaS strategy, and use data-driven tools such as HubSpot to make the most of it.

What is the largest market that can be reached? Why is it important?

The total addressable market is the amount of money you could make if your product or service got a 100% share of the market. It’s an important metric for SaaS companies because it limits how much they can grow. Knowing about TAM helps you answer basic questions:

Is the group you want to reach big enough to support long-term growth?

Are there untapped chances that you should look into?

To focus on high-value segments, how can you decide how to prioritise your resources?

If you don’t know what TAM is, it’s like trying to grow without a map. If you do your maths wrong, you might set goals that are too high or miss out on chances to serve a market that isn’t being served well enough. If you get TAM right, your SaaS team will be able to focus on real opportunities.

Three Parts of an Effective TAM Calculation

Drawing a picture of TAM is both an art and a science. These are the three most important steps:

1. Figure out your market segments

A single SaaS product can often meet the needs of more than one group. Small and medium-sized businesses, enterprise teams, and freelancers might all be interested in the same project management platform. Split your market into clear groups to learn more about their needs and how much they can spend.

2. Work from the bottom up

Under this method, your TAM is based on real information, like the number of current customers and the size of the market. For example, your TAM is $5 million if you charge $500 a year for each license and think that 10,000 people in your target niche might buy from you. This method takes more time but gives more accurate estimates than top-down forecasts.

3. Think about how the market works

The world of SaaS changes quickly. There are new competitors, new technologies that change how things are done, and changing customer tastes. Check your TAM every so often to make sure it still fits these changes. You can make sure your strategy stays useful by keeping an up-to-date view.

Examples of TAM-driven growth in the real world

A number of successful SaaS companies have used TAM to guide their growth strategies:

When Slack started out, it was aimed at small teams and startups. But when it realised that larger companies were willing to pay more for safe, collaborative communication tools, it changed its TAM.

Shopify: Shopify started out focussing on small-scale online sellers, but it grew its target audience by adding Shopify Plus, an enterprise-level e-commerce solution.

Both companies kept looking at their TAM to find new opportunities and grow in a way that would not hurt the environment.

How to Avoid Common TAM Mistakes

Traps can be found when figuring out TAM, even for veterans in the SaaS field. Do not make these mistakes if you want your analysis to be as accurate and useful as possible:

Overestimating the Size of the Market: Be honest with yourself about how well your product fits into the market. There are millions of businesses in the world, but that doesn’t mean they all need your solution.

Not Considering Competitors: Think about the presence of well-known players. If you go into a market that is already full, you might not be able to get as much TAM.

Not Taking Advantage of Niche Chances: TAM tends to focus on bigger markets, but smaller segments can offer higher profits or lower costs to get new customers.

TAM as a Growth Builder for SaaS

A correct TAM analysis helps with more than just making growth predictions. It helps you decide where to put your money in terms of marketing, sales, and product development. For instance, if your TAM analysis identifies underserved enterprise clients, you might allocate resources toward enhancing security features or recruiting specialized sales reps.

Moreover, TAM offers insights that align teams around a common goal. Marketing can better target campaigns when they know which groups of people have the most potential. Product development can better address pain points, and sales teams can see which leads are most important.

What HubSpot Can Do to Help You Use TAM

Once you’ve defined your total addressable market, the next challenge is capturing and converting that opportunity. HubSpot’s CRM platform empowers SaaS businesses to optimize every stage of the customer journey by harnessing data. How to do it:

Data-Driven Segmentation: HubSpot’s powerful analytics tools allow you to track customer behavior, identify trends, and uncover untapped segments within your TAM.

Re-Engagement Strategies: HubSpot enables SaaS teams to re-engage dormant customers by delivering personalized content and offers based on historical data.

Visibility of the Pipeline: By integrating TAM insights with HubSpot’s pipeline management features, sales teams can identify high-value opportunities and nurture them more effectively.

For instance, a SaaS company using HubSpot can create custom dashboards that visualize how much of their TAM has been penetrated and where the next big opportunities lie.

Re-Engage Customers with HubSpot

Even the most well-defined TAM won’t guarantee success without retaining and re-engaging customers. SaaS growth thrives on renewals and upsells. HubSpot’s customer re-engagement tools help you:

Segment your audience based on churn risk.

Deliver targeted campaigns that bring users back to your platform.

Track success with detailed analytics.

By leveraging data, you can rekindle relationships with inactive customers, increasing lifetime value and expanding your effective market share.Ready to take the next step? Book a free HubSpot demo with Ale, our HubSpot specialist, to see how HubSpot can help you identify and capture your SaaS total addressable market.

Drop us a line here, and let’s understand how we can help you.