Total Addressable Market (TAM) is the total demand for a given product or service. It is the total market that the company can reach. It is the sum of the entire demand for the product. TAM can also be calculated as the total revenues per year from all products sold on a given market.
It is important to have the knowledge of the size of the total reachable market in order to be able to properly estimate the overall potential of the target market or to get ready for the competitors on the target market.
Why do we need to have the knowledge about the total reachable market and how do we find out its size?
Total addressable market indicates the maximum market size that can be reached with a given product. This information is crucial when carrying out a business plan. Estimating the market size is therefore one of the first steps in creating a business plan.
In order to determine the overall market size, a market research needs to be performed. There are several ways of doing it such as contracting a specialized company, making use of data for purchase or data made accessible for free by analytical companies, or a company can carry out a market research on its own.