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A/B Testing

Total Addressable Market

Maximum revenue opportunity for product or service

Total Addressable Market represents the maximum revenue opportunity available for a product or service, assuming one hundred percent market share. This market sizing metric helps assess opportunity scale, guide strategy, and inform investment decisions. TAM is typically calculated through top-down analysis using industry reports and market research, bottom-up analysis building from unit economics and customer counts, or value theory estimating based on value delivered. For example, calculating TAM for project management software might use total potential customers times average revenue per customer. TAM differs from Serviceable Available Market, the portion of TAM your business model can serve, and Serviceable Obtainable Market, the realistic share capturable given competition. For instance, global TAM might be ten billion but SAM limited to English-speaking markets might be four billion, while realistic SOM might be two hundred million. Understanding these distinctions prevents overoptimistic projections. TAM analysis informs several decisions including whether market is large enough to justify investment, which segments or geographies to prioritize, pricing strategy and positioning, go-to-market approach and resources needed, and competitive strategy based on market dynamics. Benefits include sizing opportunity realistically, prioritizing market segments, setting realistic goals and expectations, attracting investment with credible opportunity, and guiding strategic resource allocation. Challenges include data availability and reliability, rapidly changing markets, defining market boundaries, and distinguishing TAM from attainable market. Best practices include using multiple calculation methods, clearly defining market boundaries, being conservative in assumptions, updating as markets evolve, and distinguishing TAM from realistic capture. Common mistakes include confusing TAM with attainable revenue, using overly broad definitions, relying on single data source, or treating TAM as static. Product managers use TAM to assess opportunities, prioritize markets, support business cases, guide pricing strategies, and communicate opportunity scale to stakeholders and investors. Strong TAM analysis grounds strategy in market reality, preventing pursuit of opportunities too small to matter or overestimating realistic potential.

Understand Total Addressable Market in market sizing. Learn how TAM analysis guides strategy and investment decisions.