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

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).

It is used to estimate and calculate 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.
Corporate lists formed through data-driven methods allow companies to maximize their limited internal resources and focus on the most profitable opportunities.
This not only improves the efficiency of daily business activities but also serves as effective material for presenting corporate strategies to investors.
Furthermore, it is considered an important method for preventing wasted costs associated with indiscriminate outreach to every industry that might present an opportunity.

How to Visualize Companies Within the TAM

Using a corporate database is considered the most efficient way to identify companies included in the TAM.
Specifically, corporate 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 process is divided into two methods: grouping companies and assigning priority scores.

Grouping Companies

This is a method of creating groups based on industry and number of employees.
It allows for the identification of companies with high unit prices and high acquisition potential, 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 search information
• Technographic Data: Tools currently in use, etc.

How to Calculate TAM

After understanding customer characteristics, you can proceed to calculate the market size.
There are two commonly cited approaches for this calculation: Top-Down and Bottom-Up.
TAM calculated using the Bottom-Up approach is sometimes referred to as SAM (Serviceable Available Market) or SOM (Serviceable Obtainable Market).

Calculating Market Size via Top-Down Approach

This method involves visualizing the entire target market, breaking it down by industry, and multiplying these segments by data provided by specialized institutions.
The calculation process follows this logic: "The market size for this industry is X yen, and we define our TAM as Y% of that market, which meets specific criteria such as A and B." In this process, companies that meet the usage criteria for your products or services are identified from a macro perspective, which is typically represented as an inverted pyramid.

As one method for Top-Down TAM calculation, uSonar offers a "TAM Calculation Simulator" that leverages "LBC," our proprietary corporate database covering 12.5 million locations nationwide.

Calculate Your Company's TAM Here:

TAM (Total Available Market)
Calculation Simulator

Calculating Market Value via Bottom-Up Approach

This method involves multiplying the total number of target prospects by your company's average sales value to estimate the scale of market demand.
Another approach involves conducting surveys among potential customers to gather more accurate conversion probability data for the calculation.
More precise estimates can be achieved by distinguishing between small-to-medium enterprises and large corporations, and calculating the sum of the average sales values for each group.
In this process, companies that meet the usage criteria for your products or services are identified from a micro perspective, which is typically represented as a pyramid.

Key Points: Selection Criteria for TAM

The following axes are considered important when selecting companies to include in your TAM:

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

By using the selection criteria above, you can appropriately forecast market and corporate growth.

Summary

By calculating TAM, companies can communicate their activity goals both internally and externally, accurately grasp their current position, and explain the steps they will take to advance.

Whether planning medium-to-long-term strategies or making quarterly investment decisions, having a calculated TAM allows for data-driven 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 your target market. Furthermore, it enables the calculation of SOM by integrating with SFA and CRM systems.