How To Calculate Your Startup’s Total Addressable Market (TAM) The Right Way | Dose 002
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- čas přidán 2. 07. 2024
- Founders often get TAM totally wrong. It's easy to calculate using this simple formula.
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Steve Barsh, Dreamit Ventures Managing Partner, shares common mistakes founders make when calculating their Total Addressable Market (TAM) and gives you a simple formula you should use to accurately calculate your startup’s TAM. Many founders present their startups’ TAM as the size of the problem they’re solving or the market size of a well-known company in their sector. While these statistics can inform potential investors about the scope of the problem you’re addressing or the scale of potential competitors, it doesn’t help them understand your TAM-the total amount of revenue you can earn if you sell to 100% of your market. At the end of this video, you should be able to determine your TAM by multiplying the total number of customers in your market by your product’s price.
0:00 - Intro
0:26 - Top TAM Mistakes
1:32 - Market Sizing Example
2:20 - Correct TAM Calculation
3:34 - Takeaways
3:44 - Outro
Another great video Steve! I’m really loving the quick 4-5 minute video format, they’re simple and easy to understand. Gotta get this out to more people-some great info that is super interesting and important
Thanks Noah! Let us know if there are any topics you'd like us to cover in the future!
Thanks Noah for the continued feedback. Glad you like it. A lot more coming and yep, we're working on getting the word out. If you use Instagram, Facebook, etc. feel free to put up a post with a link to the CZcams video and share it far and wide! :-)
A lot of value here. Thank you
Short and to the point! Love how this format keeps it concise and doesn't over involve other topics while addressing the actual topic.
I've been carefully looking for a well done, informative and common sense video explaining TAM for a work project I have been assigned. Anter looking at 30 videos, this is the one I am selecting. Best in class.
Great series! I analyze startups on my channel and used your ideas to show a few examples where companies totally failed at calculating their TAM and one where they did a good job. Thanks for that.
Caya at Slidebean referenced you - love the no BS advice. Breath of fresh air.
Glad you are liking them @tanglebox32! Get ready to breathe deeply -- we have a lot more coming! :-) If you like what we're doing and feel it's worthy, greatly appreciate shoutouts to the content on LinkedIn and Twitter (@dreamit @sbarsh). If you have ideas for future episodes and what you would like us to cover, please LMK! -- Steve
How would I figure out the TAM for mobile gaming? Monthly Active users divided by monthly revenue? Yearly?
this is the toughest among the slides. However you helped me a lot. One day I will find you and say thanks to you and DreamIT
Glad you found it helpful! - Steve
Damn well that was str8 forward. Thank you Steve!
hi, very short and clear..thanx steve!
This is gold. Thank you!
This helped! Thank You, Steve!
OMG, that sh*t was Bomb! I understood that better than any other video on CZcams. Thanks Steve, you ROCK!
Great advice! I wish I had discovered your videos sooner. Thanks .........
Great way to explain it Steve! Customer x Price = TAM ...Thanks for your insights!
You're welcome Juan! Glad you found it helpful!
Hey Steve! Could you please make a video on how to determine the number of potential customers for a pre-launch startup? Thanks!
Fantastic concise explanation - as someone setting up a business and developing their ideas - this has been essential to me.
Stefano Iadicicco Glad you found it helpful! Thanks for watching.
Roflmao
Hi, Steve. Thanks for making this. I was wondering if these rules on bottom
up for TAM also apply to a tech startup that hasn’t really launched yet, so no revenue. I’m
still in the early stages preparing my MVP at the moment. Thanks.
Hey Steve. Thanks a lot for this video. I'm an intern at a SaaS startup in Africa and acquiring data is quite difficult. Here's my question. So here's my question, do I need to develop a buyer persona before estimating my potential market size ?
He explained SOM actually. TAM is one for everyone, irrelevant of your capabilities to serve it right now (othervise all other investors are wrong 😊)
So true!!! Thank you!
Loving these short 5 minute films Steve. Sport industry related question for you - and others - on market/audience/pricing. A new start up is looking at the amount of people that go fishing globally, which is 100m. We have a brand new 'product' to sell them, priced at $2. We are targeting 2% of that audience. Projected gross income therefore = $4m. Is that the wrong way of doing it? Is this classed as Top Down? Have I got that right. If yes, then how do we do Bottom Up when our product is not solving a problem? Sorry to ask - totally new to this - but hope you can help!
Hi, you talk about de-risking the price. How do you do that? Talk to potentials? Check the expenses of building the product?
Hi,
Great info.
How do I do a TAM for a new market like Additive Manufacturing?
The market in very new and my bottom up analyses won’t be a great number to attract investors, how do I do?
Thanks
I’m feeling you sir. 🤗 Thanks.
Great video, I have a question about my product and how it addresses a problem with hospitals. There are 6093 hospitals I plan to market, my product is a hazardous waste containment unit. Can I estimate when discussing my TAM how many units I feel would be implemented? That number I feel would significantly impact the size of the TAM. I ask you this because from the perspective of a VC's eyes would this be acceptable? thank you, Louis
Hey Steve, how do I calculate the TAM for a Motor Insurance Brokerage? In my country, there's a third-party policy and the comprehensive policy; however, the broker’s commission varies. Commission for the third-party is 10% of the insurance rate and that of the comprehensive is 16.5%.
Thanks a lot for your content.. watched you from Africa, Ghana 🇬🇭
Thank you. But what if the cupholders were not only for Toyota cars? What if the cup holders were for another market like cinemas as well as Toyota? How would you calculate the TAM? Since you may have a customer that could have both a Toyota and goes to the cinema as well as customers that only go to the cinema but dont own a Toyota... I hope I am clear with this example...
When developing a product where/how do you find the data for potential customers to build the TAM? I’m developing a product but having a difficult time determine potential customer base.
simply Put! We Want more
Hey Steve, thanks for this video. Question: what about SAM and SOM? How do we calculate them?
What Steve's describing in this video is really your Served Available Market (SAM). This is the market that you can address today with your existing product mix and your marketing channels. As you increase your product mix and marketing channels, your SAM increases.
Great advice
How would you recommend finding the TAM for something like starting a new social media platform? Curious how you would say TikTok pitched themselves at the beginning. Even narrowing down age still brings you to several hundred million consumers, how do you get more precise for something realistic for a pitch? Thanks!!!
Great video! Question, If I’m developing a way to connect potential customers with merchants and the service is free to customers because the merchant is the one paying me then is my TAM the total number of merchants, total sales by merchants to the customers I brought them or something else?
Your TAM would simply be the Average annual revenue you will earn from a merchant * the number of potential merchants you can sell to.
Great information. As startup development company we develop AR educational app for non-public (because they can afford it), and universities. So can we use total number of these entities x average 10 users x subscription price?
Great Video!
So would these TAM calculations for a CoWork space/shop for Mechanics make sense to you?
ASE-certified technicians who work at independent repair shops (582,250) X ($5000) a month stall rent = (TAM) $2.9b monthly or $35b yearly
SOM (1% TAM) = $350m
Yep! Works across any industry. - Steve
I feel the hard part is: how and where do I get reliable data? The concept of TAM itself, not so much.
how do I know how big is my TAM when there is no research available on how big is the market
thanks for video!! i got a question, i am exploring a product which can be used for a niche set of customers (set A) and with modifications for a larger set of customers (set B). but i just want to focus on the niche to start with, so should i mention my TAM to be A+B or just A?
I would calculate your TAM for BOTH A+B and then talk about starting with target group A as part of your go-to-market strategy. More on thinking through and describing your go-to-market strategy here -- czcams.com/video/KMVjS5HRHIk/video.html
@@stevebarsh1224 thanks for the reply!!
azmatbilall my pleasure.
do we consider potential buyers in TAM calculation? anyone can answer
Do you know of any examples that you find believable of a bottoms up TAM calculation?
Thanks for your note Craig. All of the examples we have are from Dreamit companies so that info is proprietary. Do some searching on the web. If you find one that you think is a contender and that you think makes it past the issues discussed in the #TAM #DreamitDose, send the link here and I'll try to give you a quick opinion. Thx.
Thank you
Is "price" the same as ARPU?
Please make a video on how to find number of customers by giving several examples.
@Dreamit @Steve Barsh
Great series! Very helpful.
I have a few questions about calculating TAM.
If I understand TAM right, we are talking about the market, that is "potentially addressable" in some time.
1) Imagine I'm in a high growth market (cloud-computing - growing ~30% CAGR).
Should I calculate TAM based on current potential customers, or can I can count with # of users in 5 years?
2) Currently, my solution works for ~30% of these customers. But in 2-3 years, after adding more features, I can get to ~75-80%.
Which of these numbers should I use?
3) ACV for our early-stage customers (SMBs) is around $5000, but it will get higher, as we add more features (Can go up to $20-25k).
Which of these numbers should I use?
Thank you!
1) current 2) probably upper limit
Beautiful.
so the what about SAM and SOM? how to calculate them
Btw you don’t even exist yet! 😂😂 boom!
Thanks for your honest and informative videos! Love it
Love from India..
Hi thank you do this, couldn’t find my answer in the comment section, my question is this, in my market there are 73,081 smes and my product is for a monthly subscription fee for 3.89 which they can easily afford, after I multiply price by potential customers, do I multiply the amount by 12 months given that, it would be subscription based thank you?
I have a similar question, how do you calculate TAM for a recurring business.
How do you do a TAM for a tv show?
What about a new technology market... Im looking at getting in to lifi lighting ( led lights that provide internet)
Great video, Steve! Okay, so TAM = How many customers * Price. But what do you do if you're pre-market (no sales), your product has literally never been seen before (very little information on pricing), and you're still int he beta testing phase? Do you ask what price each beta tester would be willing to pay for that product? Do you assume a number of the total people in the market, and assume you'll statistically see a share of that as sales? For instance, there are 35,000 snowboarders in the United States, and let's say 1 in every 5 buy your product. That's 7200 customers at $50 per component. Then TAM = 7200 x 50 = $360,000?
Excellent.
Glad you liked it! Thanks for watching! -- Steve
Help how do I create the TAM for the strip club industry on an island with a population of 100k that has 2 existing clubs?
if my TAM is valid, work is shown, and it says $10 Billion, does it mean i can ask for $100million investment before we have revenue ?
Is not fast is great content
so TAM calculation isnt (customer x price) xcustomer? because thats what ive been seeing online
if suppose you am building some social media company similar to Instagram or tiktok, then how do you calculate you TAM ? The app is free, no subscription.
Hey Steve, how do calculate the TAM for a freemium social network that could also generate revenue from advertisement?
And thank you for your great content(subscribed with notifications on).
Came from Slidebean.
Thx for watching and glad it's helpful. You need to figure out TAM from the ad revenue. So CPM or however you will charge x expect number of users/posts/pages/interactions. Be careful, you need to get your social network up to 10s of millions of views or users to generate meaningful cash. Good luck! - Steve
@@DreamItVentures Thanks for the explanation👌, very helpful👏👏
How do I figure out my market size if I'm a monopoly and my customers are both the distributor and the consumer?
Once you have figured out the total potential TAM. How much percent of the total market should you say that you are going after ? 10% 50% ??
100%. That's the idea of "TOTAL" Addressable Market. You start by figuring out the total size... then your go-to-market strategy will show you are plan to attack that market. Good luck and thanks for watching!
How do I calculate the TAM for my enterprise SaaS start up? My customers are mobile telcos. There's about 1690 worldwide. They buy our middleware to make their mobile money products play nice with other applications. We charge them per 0.384% of transaction size per transaction API callset. They have billions of customers that do 2 billion dollars of mobile money transactions per day, worldwide (GSMA data). What is my TAM? I work it out to be 2.8Bn p.a. Is that correct?
How do we calculate the tam for medical products in this pandemic?
Same approach. What is the total number of possible customers and what is the price of your product? For any additional assumptions, you are making re. the pandemic clearly state and show your assumptions and add those into the equation. Be ready to defend your assumptions as they may be challenged (which is fine) - just be ready to back up your assertions. - Steve
@@DreamItVentures Thank you
wondering how to calculate TAM for a user-generated content startup, mind giving me some suggestions?
How many users (in your country, globally) and within your target demographic/psychographic? What % will create content (state your assumption and reference other similar sites to back up the data)? Openly state all assumptions, back them up with as much data as possible. Show your work! -- Steve
@@DreamItVentures thanks for your reply,
However I approached this in the same way you mentioned, but numbers aren't readily available on the web, and we're in blogging space where user can write on their preferred genre and can earn money through that,
Any suggestion will be helpful as I need these numbers asap because I've to put these into the pitch deck🙏
what price do you use when you have hundreds of products and a wide range of price point? such as food and wine items. bottle stopper $40 but large wine cases for $1000
I would break out the major categories, come up with average prices per category, and then do the math out. So you have more granularity to your TAM calculation. Thanks for watching!
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Different researches suggest that around 27 million couple in India are infertile and trying to conceive so for the TAM of infertility market should i multiply 27M with price of one IVF cycle ? but there are so many factors which i am caring about like 40-50% of them are not financially efficient so may be they can't go for treatment so should i care about these factors ?
Yes - I would take that into account. We call this the marketing funnel. Let's say there are 230m licensed car drivers in the US. If I am Tesla and selling $100k cars I would not multiply those numbers. I have to figure out how many actual target drivers are part of that $230m that are my real target market that can afford a $100k car. Same thing applies in your case.
@@stevebarsh1224 Now I got the point. Thank you so much ...
@@manojvashishta3808 My pleasure! Another #DreamitDose will drop today. Make sure you subscrib to the Dreamit CZcams channel to get notified. And, if you like our content, shares on social media tagging @dreamit and @sbarsh are greatly appreciated! :-)
What if my target number of customers are actually 1 million. (I know that is too small but it’s an ethnic market). Competitor has 1 million subscribers while we have 20,000. How do we calculate TAM when the other customers are onboard the other company? Btw, the competitor had only 30,000 subscribers two years ago. How do I even find out the market when they’re not yet used to the technology I am introducing? The market is still too small because no one is using the technology yet but if the market gets used to the technology, it could be a 48 million market.
Thx for your question. When calculating TAM you use the TOTAL number of potential customers without caring how many customers your competitor has. When Airbnb started, they had 0 customers and Hilton + Marriott + others had all of the customers. Uber started with 0 customers and taxis had all. So Total ADDRESSABLE Market (TAM) is measured as how many potential customers are in the possible "pool". Then you need to put together the strategy of how and why you will win customers over based on the benefits you offer and what you charge (if anything). Hope that helps!
@@stevebarsh7727 This helps a lot. Thanks
denniszenanywhere my pleasure!
Steve you are soooo helping a lot of us... big thanks all the way from a little african portuguese speaking country, Cape Verde, struggling to innovate!
👍
basically hes saying dont be an absurd lunatic when using ur calculator
:)
If a start-up makes that kind of TAM estimate mistake of the Prius example it's really hard to think they are capable of doing anything worth anyone's attention.
Please sir I came here from slidebean and I have noticed your video sizes are too large for streamers in Africa to comfortable watch. Pls compress we love what you do.
I feel sorry for the prius cupholder inventor guy. $1M total lol!!
Chance this guy never heard of creating new (mass) markets...
JUST CAME HERE FROM SLIDEBEAN
I think if Uber made their calculations like this, they wouldn't have started in first place.
it is never accurate, You have to take "Calculated" Risk
Total Bullshit
Customer x price = bullshit
For crying out loud, PLEASE, PRETTY PLEASE, STOP SAYING ‘let’s dive in’.
Thank you for this quality info and a well explained video! I've got the following question.
To calculate the most realistic as possible TAM for a Digital Bank in LATAM, but the long term scope is being worldwide. HERE IS THE QUESTION.
My TAM should be aimed at a worldwide análisis or LATAM? I imagine it being TAM focused Worldwide, SAM focused in LATAM and SOM focused on the serviceable portion of the SAM.
Will be waiting for the answer, thanks!
Good question. How did you go about it in the end?