00:03 We talk a lot about growing businesses and launching products and even just expanding influence. have you ever thought about what the absolute selling is? What's the total possible potential if your idea reach every single person who could be interested in it? Or that fundamental question is kind of what leads us to today's topic. Total Addressable Market or TAM for short.

00:31 And we've gone through some really interesting resources that break down how to really understand this idea. Yeah, definitely. Think of it like the express lane to understanding TAM. And why it really even matters. Exactly. Because figuring out the size of your potential market, used to be a little bit like detective work, right? Oh, yeah. You'd be looking at these huge industry reports, the top-down approach, or digging through all your own customer data, the bottom-up way. Both are valuable.

00:59 but they can take a lot of time. Absolutely. And effort. Big time. And these days things move so fast. See, it is key. So that's where a more modern approach comes in. Using things called TEM calculators. Right. These tools can give you a much faster, and in many cases more accurate, estimate of the total market size out there. They can.

01:18 So our goal today is to give you a really solid understanding of what TAM is and how it's calculated using those traditional methods, but also these newer, more efficient tools. So you can make better decisions about where to focus your energy and resources. That's it. All right, so let's dive in. Let's do it. What exactly is TAM? So total addressable market. It's the total revenue opportunity that's available if you achieved 100 % market share in your market. Wow, so every single person. Yeah.

01:47 that could possibly buy? Every single possible customer. It's a huge number. It's the ceiling, yeah. But why even try to calculate it? Right. Like what's the benefit for someone listening right now? Well, first, it gives you an idea of the maximum possible growth. Like how big could this thing really be? Right. And that helps you set realistic goals. Second, it helps you figure out which markets to really focus on. Where's the biggest potential payoff? And third,

02:16 It lets you be strategic with your resources. Oh, that's interesting. Your time, money, people. You can see where to put them to get the best results. That makes sense. You wouldn't want to put a ton of effort into a tiny market if there's a much bigger one just waiting. Exactly. In fact, we had that issue early on. Oh, really? We were so focused on one tiny niche and we missed this huge market right next to it. Wow. If we had known our TAM back then, it would have been a game changer. I bet. Absolutely. And on top of that, knowing your TAM,

02:45 It helps you decide whether to go into new markets or create new products. And it's really important when you're talking to investors or stakeholders, it helps you explain your company's potential. Okay. So we briefly mentioned those traditional ways of figuring out TAM. Let's dig a little deeper into the top-down approach. What does that actually look like? So top-down starts broad. You're looking at industry reports, research studies, expert opinions. Basically,

03:14 You get the total size of the market and then try to figure out what portion of that you could realistically capture. like you're looking at the whole pie and trying to decide what size slice you can get. That's a great analogy. That makes sense. Yeah. Now bottom up, it's the opposite. Instead of the big picture, you start small. Okay. You look at your own data, your sales, pricing, customer behavior. So like what you're doing now, basically. Exactly.

03:41 And from there, you build up to estimate the total market size. So that's very specific to your business. It is. But it seems like you need a lot of your own data to work with. You do. It's personalized, but you need that solid foundation of data. And we talked about how both of these traditional approaches can take a lot of time. Yes. Lots of analysis, research. For sure. And making assumptions that might not even be accurate. You got it. And in today's market, things change so quickly. All the time. Those older industry reports might not be reliable anymore. Yeah, that's the problem.

04:11 Which brings us to those modern TAM calculators. What makes those the preferred way for so many companies? Speed and accuracy. Modern TAM calculators use a ton of real-time data. Oh, wow. Sophisticated algorithms and automated processes. So less guesswork. Way less. And they cut out all those manual calculations. So businesses can make decisions faster and with more confidence, and they can use their resources more efficiently. OK, so we're talking about

04:40 aiming for a market, but markets themselves can be very diverse. Extremely. That's where market segmentation comes in, right? Absolutely. It's basically taking that big market and splitting it up into smaller groups of customers who are similar. Okay. You know, in terms of their needs or their buying behavior, this lets you tailor your products, marketing to each specific group. So like you're not trying to make one thing appeal to everyone because that never really works. It doesn't.

05:09 Can you give us an example? Imagine a company that sells project management software. OK. They could just market to all businesses. Yeah. But it's more effective to segment. Maybe they target small businesses with the simple version, then mid-sized companies with more features, and large companies with even more. Oh, I see. So different versions for different needs. Exactly. Wow, that's smart. And they could also segment by industry. OK.

05:36 What a tech startup needs is different from a manufacturing company. Right. So you really need to understand who you're trying to reach before you do anything else. You got it. Defining your target market is step one. Okay. So let's say we've done that. Right. We've got our target market. Yeah. How do we then figure out the actual size of that market? Like manually before we use any fancy calculators. Okay. So first, like you said, you got to clearly identify your target market. Right. Got that part.

06:05 demographics, geography, the whole nine yards. Yep. Then you estimate the total demand in that segment. How many potential customers are out there? OK, how do you do that? You can look at industry reports, census data, or even do your own surveys. Third, you figure out what market share you could realistically get. You got to look at your competitors, your pricing, what makes you unique. That makes sense. Then you estimate the average amount a customer would spend with you in a year.

06:33 And finally, you multiply the number of potential customers by that average amount. Okay. And that gives you a rough idea of your TAM. That sounds like a lot of research and estimation. It is. It helps you understand your market. Yeah. But it's where a tool like Dealfront Target can really streamline things. Oh yeah. Dealfront Target. How does that help? It lets you quickly see how many companies match your specific target market. Interesting. You can filter by things like countries and regions so you know where your customers are.

07:02 You can choose industries to focus on the ones that need your product or service. Yeah, that makes sense. And you can filter by company size too. Correct. Because a big company has different needs than a small one. That's true. Once you've got your filters, Dealfront Target tells you how many companies fit. OK, so it tells you the number of companies. Yeah. But how do you get from that to the actual TAM number? You use the TAM formula. It's pretty simple. OK, wait, Ali. You take the number of companies. Got it.

07:31 Dealfront Target gave you and multiply it by your average contract value or ACV. Okay. Remind me what ACV is. It's the average revenue you get from each customer per year. So if I know how much each customer spends on average, and Dealfront Target tells me how many potential customers I have, I can get a good estimate of my total market potential. Exactly. Great. And Dealfront also has a free TAM calculator. Really? That's awesome. It makes things even easier.

08:00 How does that work? It's very straightforward. First, you choose your target countries. Right, because location matters. A lot. Then you filter by industries. Makes sense. Focusing on where your product is most relevant. Yep. Then you refine by company size, choosing the ranges you're interested in. Okay. There's also a spot to enter your ACV. Okay. The calculator works without it, but it's more accurate if you put it in. Got it. Then you hit calculate. And that's it. That's it. It gives you your estimated TAM.

08:27 and it has a feature called Explore Your TAM. Oh, cool. That breaks down the results even more. Great. And it uses really accurate data for businesses in Europe. So much easier than doing all those manual calculations. A lot easier. OK, so you've used the calculator and you've got your TAM number. What should you do with it? The next step is to identify your ideal customer profile, or ICP.

08:52 This is about figuring out who your most valuable customers are, both in that total addressable market. You want to focus your sales and marketing on them. Makes sense. Because they're the ones who are most likely to buy from you. So it's not just about knowing the size of the whole market. It's about finding the best customers within that market. You got it. Wow. That's insightful. Knowing your TAM helps you create a really effective market strategy. You can use your resources wisely by focusing on the areas with the highest potential.

09:20 And it helps you make a solid plan for entering and expanding into markets. Okay. All based on real data. And this isn't a one-time thing. Nope. Markets change, competitors come and go, your products change. Yeah. So it's important to revisit your TAM regularly. Okay. So basically TAM is the total possible revenue you could make. That's right. Understanding it helps you prioritize markets, use your resources well.

09:47 and make smart decisions. Exactly. There are those traditional ways to calculate it. tools like the Dealfront TAM calculator are way faster and more accurate. Definitely. And once you have your TAM, you can then focus on finding your ideal customer. That's the key. This has been a great deep dive, really insightful. Glad you think so. Now for you, our listener, thinking about this whole idea of TAM, what new opportunities might this reveal for you? Right.

10:15 in your business or whatever field you're in. question. Definitely worth thinking about. Thanks for joining us. Thanks for having me. And we'll see you next time for another deep dive. Looking forward to it.