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Marketing
Guides

How To: Calculate Total Addressable Market

Understanding your Total Addressable Market (TAM) empowers you to know just how much growth potential exists for your business. 

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The 6sense Team
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Meeting between sales operations and salespeople to refine processes

Chapters

Chapter 1

Introduction

Chapter 2

What is a Total Addressable Market?

Chapter 3

How Do You Calculate TAM?

Chapter 4

Diving Deeper: Serviceable Obtainable Market

Table of Contents

Chapter 1

Introduction

Selling and marketing are harder than ever. Old-school tactics are pushing modern buyers away, leaving revenue teams frustrated, inefficient, and unable to compete. In No Forms. No Spam. No Cold Calls, Latané Conant delivers the recipe for scalable, repeatable, data-driven sales and marketing strategies that work today.

In this How To, we provide a practical, tactical dive into some of the strategies outlined in Chapter 2.

These days, most B2B revenue teams share the same overarching goals:

  • Sell more
  • Sell better
  • Sell faster

But achieving this game-changing trifecta requires overcoming a number of hurdles — the most significant of which is knowing what prospects are most likely to buy, and how much potential demand exists in the marketplace.

Uncovering this information requires an understanding of your Total Addressable Market, or TAM. In her book No Forms. No Spam. No Cold Calls, author and 6sense CMO Latané Conant defines TAM as “the entire universe of opportunities available to you — every potential customer for your solution.”

Put another way, it’s the total revenue opportunity available to your company if you could achieve full market share for your product or service.

Let’s dive more into what TAM is (as well as its cousin, Serviceable Obtainable Market), how to calculate it, and how it should inform your marketing and sales strategies.

Chapter 2

What is a Total Addressable Market?

TAM represents the overall market demand and maximum possible revenue for a product or service. As a measurement of potential growth, TAM is important for demonstrating your company’s value to investors, employees, and other stakeholders.

Knowing your TAM also helps internal marketing, sales, product, and customer success efforts. If you offer multiple products and/or services, understanding the TAM for each product and service helps you understand where your best growth opportunities lie, and where your company should invest resources.

Chapter 3

How Do You Calculate TAM?

Calculating TAM requires digging into sales and pipeline management tools that house data about the overall market and your deal history.

First, identify the total number of potential accounts in the market using firmographic data and technographic data.

Combining firmographic and technographic data will reveal a list of accounts that could potentially become customers. This is also called an ideal customer profile (ICP).

Then, multiply the total potential accounts in the market by your company’s annual contract value (ACV).

A Quick Example: ‘ACME Corp.’

The fictitious ACME Corp.  is a SaaS business that sells software to hotels and motels within the United States. ACME’s average ACV, according to its historical sales data, is $15,000. With approximately 132,000 hotels and motels in the U.S. as of 2022, Acme’s TAM is $1.98 billion.

Pro Tip

Don’t forget to consult your own CRM to make sure you’re capturing all of your existing customer types and any aspirational new customer groups. Using your own historical data to determine TAM is the most accurate approach, since it represents real-time demand that exists for your solution.

Chapter 4

Diving Deeper: Serviceable Obtainable Market

Unless your business has a monopoly in your industry, using TAM to exclusively inform your marketing and sales targeting isn’t a strategy we recommend. After all, you won’t capture 100% of your TAM for a number of reasons:

  • Some companies will choose a competitor
  • Some companies lack the budget for a new solution
  • Some companies aren’t interested in a new solution

While calculating TAM is valuable for understanding the total market potential of your product, it doesn’t provide a clear roadmap for reaching that potential. That’s why we suggest also using your SOM (Serviceable Obtainable Market), or target market — it’s a more realistic measurement of accounts that are likely to purchase your product.

Before you can determine your SOM, you must calculate your Service Addressable Market, or SAM (bear with us). SAM is the subset of accounts within your TAM that you can realistically target based on your current business model (e.g., accounts that operate in predominantly English-speaking markets).

Continuing with our ACME Corp. example, let’s say the company is only targeting a certain geographic region of the U.S. that contains 50,000 out of the total 132,000 hotel and motel chains. Using the same ACV value of $15,000, the SAM would be $750 million.

Now, we can finally get to SOM, which multiplies this year’s SAM by last year’s market share. If ACME’s market share from last year is 35%, its SOM is $262.5 million ($750 million x 0.35). 

The differences between TAM, SAM, and SOM.

What Makes an Accurate SOM? 

Using SOM to inform your strategy takes your competitors into account, as well as:

  • Product limitations
  • Capacity for internal growth
  • Historical performance data

But calculating your SOM requires having high-quality data provided by revenue and account intelligence platforms. They provide intent data that doesn’t just tell you who companies are, but also what topics those accounts are researching on your website and across third-party websites, too. With visibility into this activity, you can identify the accounts that are in-market and most likely to purchase.

Incorporating intent data into your SOM also allows for more focused marketing and sales efforts. Messaging, content, and full-fledged campaigns can be tailored and highly personalized for different segments of your audience based on:

  • Company industry
  • Company size
  • Stage in the buying journey, and 
  • Interests and pain points 

Tools like 6sense can identify companies that match your desired characteristics using this intent data. Armed with this fuller, more realistic picture of your market, you can maximize growth within your SOM and capture TAM over time.

Learn More in Our ‘No Forms. No Spam. No Cold Calls’ Resource Center

Interested in learning more about taking your B2B sales and B2B marketing efforts to the next level by uncovering and targeting the accounts most likely to buy? Visit our Resource Center to find more How-To’s like this one inspired from the pages of Conant’s book.

All of 6sense’s proceeds from book sales go to GoodSense, the charitable arm of 6sense whose mission is to do our part for our community and beyond.

No Forms.
No Spam.
No Cold Calls.

Grab Your Copy
The 6sense Team

The 6sense Team

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The 6sense Team
6sense helps B2B organizations achieve predictable revenue growth by putting the power of AI, big data, and machine learning behind every member of the revenue team.

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