What Is TAM, the Essential Metric for Data-Driven Sales Strategy?

What Is TAM (Total Addressable Market)?

The indicator representing the overall monetization opportunity for a product or service is referred to in English as the Total Addressable Market (TAM).

Also known as the maximum potential market size, it allows for the estimation and calculation of specific market sizes, enabling the efficient creation of a list of potential customers.

The Importance of Visualizing TAM

By identifying the TAM, sales and marketing teams can develop individual approach strategies and plans based on the same list.
Company lists formed through data-driven methods allow organizations to maximize their limited internal resources and focus on the most profitable opportunities.
This not only realizes greater efficiency in daily corporate activities but also serves as material to effectively communicate the company's strategy to investors.
It is also highly regarded as a method to prevent the waste of costs associated with blindly approaching every industry that might have potential opportunities.

How to Visualize Companies Included in TAM

Using a corporate database is considered the most efficient way to identify companies included in the TAM.
Specifically, company characteristics and the actual number of companies are visualized using industry, annual revenue, number of employees, and location.
Regarding which segment of the visualized companies to target first, the approach is divided into methods of "grouping companies" and "assigning priority scores."

Grouping Companies

This is a method of creating groups based on industry and employee size.
It is possible to identify companies with high unit prices that are likely to be acquired frequently, while excluding industries that contain many companies with small deal sizes and high risks of losing the deal.

Assigning Priority Scores

This is a method of scoring companies that have high similarity to existing customers.
Items used to measure similarity include the following:

• Corporate Attributes: Industry, Annual Revenue, Number of Employees, etc.
• Corporate Characteristics: Organizational Structure, Management Vision, Focus Businesses, etc.
• Intent Information: Sensitivity to specific types of information
• Technographic Data: Tools currently in use, etc.

How to Calculate TAM

After understanding customer characteristics, proceed to calculate the market size.
There are two main approaches: "Top-Down" and "Bottom-Up".
TAM calculated via the "Bottom-Up" approach is sometimes referred to as SAM (Serviceable Available Market) or SOM (Serviceable Obtainable Market).

Calculating Market Size via Top-Down

This is a method of visualizing the entire market to be approached, breaking it down by industry, and multiplying it by information provided by specialized institutions.
The calculation process follows the logic: "The market size of this industry is X, and we define Y% that meets conditions A and B as our TAM." In this process, companies that meet the usage criteria for the company's products/services are identified from a macro perspective, so it is usually represented as an inverted pyramid.

As one method for Top-Down TAM calculation, uSonar offers a "TAM Calculation Simulator" that utilizes "LBC," a corporate database covering 12.5 million locations nationwide, uniquely constructed by uSonar.

Calculate Your Company's TAM Here:

TAM (Total Available Market)
Calculation Simulator

Calculating Market Value via Bottom-Up

This is a method of calculating the scale of market needs by multiplying the total number of target approaches by the company's average sales price.
There is also a method of collecting more accurate prospect levels by conducting surveys on customers who could be potential targets.
More precise financial estimates can sometimes be made by distinguishing between small-to-medium enterprises and large corporations, and calculating the sum of the average sales price multiplied by each group size.
In this process, companies that meet the usage criteria for the company's products/services are identified from a micro perspective, so it is usually represented as a pyramid.

Key Points: TAM Selection Criteria

The criteria considered important for selecting companies included in the TAM are as follows:

• Are the corporate characteristics of current and potential customers understood?
• Which industries/sectors have been sold to in the past?
• Regarding the industries/sectors sold to in the past:
• How are they growing?
• Are new entrants appearing?
• Regarding the companies included in the industries sold to in the past:
• Where are they located?
• What is their revenue/employee scale?
• Do they have large budgets?

By using the above selection criteria, the growth potential of markets/companies can be appropriately predicted.

Summary

By calculating TAM, companies can demonstrate their activity goals both internally and externally, accurately grasp their current position, and explain how they intend to step up.

Whether in the formulation of medium-to-long-term plans or quarterly investment decisions, having the TAM calculated allows for data-based judgments on which areas to allocate resources to and in what amounts.

Our service, "PLANSonar," introduced in this article, provides the latest corporate data necessary for calculating TAM and SAM, enabling the visualization of targets. Additionally, it enables the calculation of SOM by integrating with SFA and CRM systems.