Measuring Total Addressable Market – TAM and Active TAM
The first dimension in constructing a Revenue Architecture is Markets and Buyers. The output includes the identification of the Total Addressable Market (TAM).
Once we have made a market selection – considering market strengths and weaknesses, offering portfolio and a range of competitive and market forces, we can measure TAM. TAM works particularly well in B2B and account-based marketing, but it is useful as well in B2C. Here are some ways we think about TAM linked to S.M.A.R.T goals and as input for funnel analysis and segmentation for targeted buyer engagement.
TAM value is a simple calculation of (total number of customers in the market) * (average annual revenue of a customer in that market). I like to break this down a bit further in order to build funnels and get a better sense of how well we are progressing with market share. To do this, we focus not only on the TAM value (revenue value of the TAM), but on the number of customers or accounts in the TAM. This way, we can measure awareness and engagement levels against a denominator.
We first need to consider Active TAM. How many of the total addressable market are actively in a buying cycle at any one time? It is not easy to identify Active TAM. We often depict this as a high-level percentage of the TAM. Clearly, in most markets, not all members of a TAM will be active buyers of the products and services we are selling in any one cycle. Once we have a sense of the size of the Active TAM, we can make some headway on measuring awareness and engagement levels against the Active TAM. In account-based marketing – with named accounts in the TAM – this is more precise and measurable. We can use reverse IP lookup, for example, to determine whether people in our TAM named accounts are aware of us or engaging with us by clicking through on our website or engaging meaningfully with content or better yet speaking with our sales team.
Quick math can help us envision funnel strategies to measure awareness and engagement and drive conversions to qualified sales opportunities.
