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

What Is TAM (Total Addressable Market)?

The metric representing the overall revenue opportunity for a product or service is known in English as the Total Addressable Market (TAM).

It is also referred to as the maximum potential market size. By estimating and calculating a specific market size, it becomes possible to efficiently generate 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 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 company strategies to investors.
Furthermore, it is considered important as a method to prevent the waste of costs associated with blindly approaching every industry that might have potential opportunities.

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, we visualize company characteristics and the actual number of companies using industry, annual revenue, number of employees, and location.
Regarding which segment of the visualized companies to target first, the methods are divided into 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 frequency, 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 topics
• Technographic Data: Tools currently in use, etc.

Methods for Calculating TAM

After understanding customer characteristics, we proceed to calculate the market size.
There are two known approaches to calculation: 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 Approach

This is a method of visualizing the entire market you wish to approach, 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 our TAM as Y% of that market which meets specific criteria." In this process, because we identify companies that meet the usage criteria for our products/services from a macro perspective, 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, built independently by uSonar.

Calculate Your Company's TAM Here:

TAM (Total Available Market)
Calculation Simulator

Calculating Market Value via Bottom-Up Approach

This is a method of calculating the scale of market needs by multiplying the total number of target companies by the average sales amount per company.
There is also a method of calculating this after collecting more accurate prospect data by conducting surveys on potential customers.
Sometimes, more precise monetary estimates are made by distinguishing between small-to-medium enterprises and large corporations, and then calculating the sum of the average sales amounts for each group.
In this process, because we identify companies that meet the usage criteria for our products/services from a micro perspective, it is usually represented as a pyramid.

Key Points: Criteria for Selecting TAM

The following criteria are considered essential for selecting companies to include in your TAM.

• Are the corporate characteristics of current and potential customers clearly understood?
• Which industries or sectors have been targeted for sales in the past?
• Regarding the industries or sectors targeted in the past:
• How are they growing?
• Are new market entrants emerging?
• Regarding the companies within the industries targeted in the past:
• Where are they located?
• What is their revenue or employee scale?
• Do they have significant budget capacity?

By utilizing the selection criteria above, you can accurately forecast market and corporate growth potential.

Summary

By calculating TAM, companies can communicate their operational goals both internally and externally, accurately grasp their current position, and provide a clear explanation of their growth trajectory.

Whether developing medium-to-long-term plans or making quarterly investment decisions, having a calculated TAM allows for data-driven judgments regarding 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 your SFA or CRM systems.