Total Addressable Market Calculation: Estimating Your SaaS Opportunities

Facebook was just a rough start-up in 2004. It was made up of Harvard students. It’s now a huge business around the world worth hundreds of billions of dollars. Something important that helped it rise so quickly? Clear picture of its Total Addressable Market (TAM). TAM stands for “Total Addressable Market.” TAM is the number of people who would buy its product if it had a 100% market share.

This important metric helps SaaS businesses figure out how much money they can make and pick the best ways to market, grow, and come up with new products. Still, a lot of startups either think their TAM is too high, which makes their goals unrealistic, or too low, which means they miss out on big chances to grow.

Whatever TAM stands for, explain it to me.

It stands for “Total Addressable Market.” This is the total number of people in a market who can buy a product or service and still make money. It gives SaaS companies a way to use data to figure out how big they could get. By correctly figuring out TAM, businesses can improve how they go to market, put customer groups in order of importance, and make better use of their resources.

Everyone who invests or runs a business needs to know about TAM. Investors use this metric to decide if a startup has a big enough market, and founders use it to decide if their business plan will work in the long run.
There are three ways to find the total market that can be reached.

1. Begin at the top and work your way down
   
   This method uses data from the whole economy, market research, and industry reports to figure out TAM. A lot of the time, this means getting data from outside sources like IBISWorld, Gartner, or Forrester.
   
   If Gartner says the global market for CRM software is worth $60 billion, for example, a new CRM SaaS company might figure out their TAM by figuring out the real group of people they could reach. But the top-down method might not work if the data is too big or out of date.
   
2. A method that works from the bottom up
   
   Most people think the bottom-up method is more accurate because it uses real company data. Taking part in:
   
   Finding out how many possible customers there are
   Want to know the average revenue per user (ARPU)
   Using these numbers to figure out the size of the whole market
   
   For example, if your SaaS solution is aimed at e-commerce companies, you could find out how many e-commerce sites are in your target area and then multiply that number by the amount of money you expect to make from each customer. This method makes the Total Addressable Market Calculation more accurate and scalable by using real business data instead of general assumptions about the industry.
   
3. A value-based approach
   
   Based on how much value your product gives to customers, this method figures out TAM. If your software keeps customers 10% longer and your ideal customer makes $10 million a year, you can figure out how much more valuable your product is and set the price accordingly. This method works especially well for new SaaS products that don’t fit into any existing groups.
   
   Why it’s hard for SaaS startups to figure out TAM
   
   A lot of SaaS startups make the mistake of overstating their TAM to get investors, only to have trouble when sales don’t live up to their expectations. Others focus too narrowly on their main market and miss out on potential customers in nearby markets. It’s not just about numbers to make a good TAM; it’s also about finding the right balance between hope and reality.
   
   Based on a report from 2018, 42% of startups fail because there is no need in the market. This shows how important it is to do a correct Total Addressable Market Calculation: companies need to make sure they are entering a market with enough demand to support long-term growth.
   
   How to Use TAM Insights to Help Your SaaS Business Grow
   
   Once you have a good Total Addressable Market Calculation, you can use it to make your business plan better:
   
   Split up your market: There are two parts to your TAM: the Serviceable Available Market (SAM) and the Serviceable Obtainable Market (SOM). SAM is the share you can realistically aim for, and SOM is the share you can actually get.
   
   Put your most valuable customers first: Focus on groups of customers that have the best chance of bringing in the most money and staying with you.
   
   Change your pricing strategies: A well-calculated TAM helps figure out the best price based on what customers are willing to pay and what the market wants.
   
   Make a plan for growth: Knowing the size of your market helps you make smart choices about launching new products or expanding your business around the world.
   
   Putting TAM and TAYB’s Knowledge Together
   
   To correctly figure out TAM, you need data-driven insights, automation, and for analytics and CRM systems to work together without any problems. Now this is where HubSpot really shines. HubSpot’s data intelligence tools give SaaS businesses real-time information about their customers, which helps them improve their TAM estimates and run more effective marketing campaigns.
   
   We help SaaS companies use HubSpot to its fullest potential at TAYB by developing HubSpot APIs and providing technology consulting. Our team makes sure that the business decisions you make are based on correct, usable data, whether you need custom integrations, automated reporting dashboards, or advanced analytics.

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