Complete Definition
Total Addressable Market (TAM) represents the entire revenue opportunity available if you achieved 100% market share. It's the "pie" you're competing for and helps contextualize your business opportunity.
How to Calculate TAM
Top-Down Approach
Start with industry reports and narrow down. TAM = Industry Size × Percentage Relevant to Your Product
Bottom-Up Approach
Build from your unit economics up. TAM = Number of Potential Customers × Annual Revenue per Customer
Value Theory Approach
Calculate based on value you provide. TAM = Total Value Created × Your Capture Rate
Why TAM Matters
For Fundraising
VCs typically want $1B+ TAM for venture-scale opportunities. Smaller TAMs might suit bootstrapped businesses.
For Strategy
TAM helps prioritize markets, segments, and geographic expansion.
For Valuation
Large TAMs support higher valuations based on growth potential.
TAM Mistakes to Avoid
- Being too broad ("everyone is our customer") - Ignoring market trends and changes - Confusing TAM with SAM or SOM - Not supporting claims with data - Double-counting market segments