What is TAM? & Ways to Calculate it

TAM full form is the Total Addressable Market. It is a widely used term among entrepreneurs & Investors. In another way, you can say it is the revenue a business or company can generate in a particular category.

It is sometimes referred to as the market size or total market of a product. Investors also seek this value because it helps them determine how big the market is and how much they should invest to get good returns.

The important point is how to calculate TAM because it is the key component of a company’s value.

There are three ways to calculate it that are very important. So let us understand them one by one.

TAM (Total Addressable Market)
TAM (Total Addressable Market)

Bottom-Up Way

The bottom-up method is a more credible and reliable method than the Top-Down way because it uses the current or existing customer data to know the market size.

Top-Down Way

The Top-Down way contains a process in which we select a total number of people in a particular segment/country or region and then reduce it to the target people based on factors such as demographics, geography, category, demands, etc.

Value Theory Way

Value Theory way is different from the above two and in this way, the size of the market is estimated through the value of the product. It is mostly done when a new kind of product is introduced in the market.

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