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Tarun Suthar
•

The Institute of Chartered Accountants of India • 15d

How to calculate your Total Addressable Market (TAM)❓️ Market Size: 9 out of 10 Startups are doing it wrong 😐 It is not: ❌️ The total size of the problem ❌️ The TAM of your competitors ❌️ The size of the entire industry Example: Wrong Market Size #1 If you are producing tires for cars, you cannot say that your TAM is the current global market for automotive manufacturing = valued at $2.9 trillion in 2022, and it is currently growing at a CAGR of 3.1%. No, you can’t say that! 🙂 Example: Wrong Market Size #2 We are targeting a cybersecurity problem. The market is HUGE. According to Statista’s Cybersecurity Outlook estimates, the global cost of cybercrime in 2022 was 8.44 trillion dollars. Again, that’s not your TAM. 🙅‍♂️ ✅️ Your total market size is only your target market. Definition: The total market demand for a product or a service. ❓️How to calculate it? TAM = Total number of potential customers x Your product price #1 Pitfall If you mess up with either of these numbers, your TAM becomes inaccurate and irrelevant. For you - and for your investors. ✨️ Calculating the Number of Customers: ❓️Who is your target customer? (Based on the problem you're solving) ❓️What geography are you targeting? ❓️How many people in that geography have this problem? ✨️De-risking Your Product Pricing: ❓️How do you know your price is accurate? ❓️Have you tested and de-risked your pricing with real users or research? 💭Remember: 1. TAM is the total market demand for a product or service, generally calculated for only one year. 2. All assumptions should be transparently documented - for you and your investors. 3. Cite reliable data sources. 4. Specify exactly who your customer is - and which geography you’re targeting. Example: You solve a diabetes problem and you're targeting Europe. • 32.3 million adults were diagnosed with diabetes in the European Union in 2019. • Your solution costs $50 per year per customer. • Your TAM = 32.3 million people x $50 = $1.6 billion max. potential revenue/year

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