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What is Total Addressable Market (TAM)?
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Running a business requires you to spend a lot of time on the present. The reality is the future potential is equally as important as the past. Buyers measure that future potential in a metric called the total addressable market TAM. Total addressable market quantifies the total annual market demand for your solution in a dollar amount. Simply put, TAM is the total amount of revenue a business can generate selling its product to every prospect or customer that is addressable. Now addressable means that the solution is tailor made or has a use case for that particular type of business. After identifying the number of addressable customers, you just multiply your annual contract value by the number of customers. For example in the real world, if you develop and sell practice management software to legal firms to be used by lawyers and paralegals, your addressable customer base would include all attorneys and legal staff across the globe. Where you can become more exact is by having multiple sources support your claim on how many addressable customers exist. For example, a Seller might broaden the legal addressable market to include other types of professional services like accounting.