One of the trickiest things when raising a round of venture funding, launching a new product line, or deciding how to segment your sales team’s efforts is how to figure out the size of your market. To simplify it, your “total addressable market,” or TAM, is essentially the total revenue you could achieve by selling your product or service into your target market(s). To complicate it, you need to have some sort of units, a dollar amount you’ll achieve per unit (i.e. price of your product), and then on top of that, you’ll need to assess the competitive saturation of the market to realistically predict how much you can capture. Oh, and you’ll also need an accurate data source to pull all this together as you sell something that’s potentially never been sold before. Great!
Before we lay out some resources to use, let’s run through an example of how to calculate your TAM with a fictional software company, ACME. For the purposes of this article, we’re focusing on how to do a “bottom-up” approach, versus a “top-down” approach to help you figure out the size of your market. ACME knows that in SaaS there are usually three types of value propositions: there’s software that increases a customer’s revenue, software that decreases a customer’s costs, and/or software that increases a customer’s productivity (or efficiency). In a simple world, that’s it. We could write a long post about figuring out your product’s pricing (a really long one), but we’ll spare you for now by saying that we know ACME increases productivity by 20% for each worker (unit) who uses it, and pricing will be tied to that.
Who are the workers? Well, ACME is a software platform that helps medical office assistants manage paperwork for their patients more efficiently. From the Bureau of Labor Statistics (BLS) we know that there are ~590,000 medical office assistants in the US and they make an average of $31,540 per year. We also know from the BLS that this profession is growing much more quickly than others out there, with a predicted employment growth of 23% over the next 10 years or so. Not a bad time to be a medical assistant! These professionals are overwhelmed by their day-to-day responsibilities in offices with increasing patient numbers each year, so a product like ACME, which increases their efficiency, and delays the need to hire more assistants can be hugely valuable to a doctor’s office. With this in mind, ACME charges $6,000/yr (a little less than 20% of the average assistant’s salary), since their product is known to increase productivity by 20%. Let’s run a full TAM with these pieces in place:
590,000 Medical Assistants (Units) x $6,000 (Price Per Unit) = $354,000,000,000
Whoa, huge market! ACME’s TAM is $354 billion. In reality, this is a massive (and unrealistic) TAM. It’s unlikely every doctor’s office would spend $6k more a year to enable every assistant in the near future, and we need to consider the fact that there’s a lot of product saturation in the healthcare space. Still though, if this were true and ACME’s product is as good as they say, this company could easily become a billion dollar enterprise, and this TAM is very supportive of the first three scenarios we mentioned: raising a successful round, planning how to build your product, and effectively mapping out where your sales team should focus.
This is one way to run a basic TAM analysis. Here are our 5 favorite free datasets to help you figure out the size of your market:
It turns out the economists at the government collect a ton of data. Given that most tech solutions today are saying they’re going to replace a worker, or turn workers into cyborgs of human-tech efficiency, it probably makes sense to check this out for validation as to just what set of workers these solutions are (hopefully) helping. PS – here are some other similar government sponsored datasets which can be helpful for various TAMs: census data, U.S Small Business Administration data, healthcare data.
Most people think of LinkedIn as a place to connect with colleagues, search for new candidates for a company, or find people you would like to sell to, but using LinkedIn’s advanced searching features, you can start to see just how many people or organizations fit the mold of your buyer persona. In other words, LinkedIn can very quickly give you the answers to the “# of units” part of your TAM equation. See an example below if I were to try and scope out the # of units in the market of people who are data scientists in the US:
By the way, if you sign up for a free trial of LinkedIn’s Sales or Talent Navigator solutions, you can gather even more data here.
Often times, someone else out there has already done the work for you. If you’re a company headed into a space where you’ll have some close competitors that are already public, one great resource is to look at their IPO S-1 filings and specifically their 424b4 form, which is their prospectus. For example, if you look at Snap’s S-1 on page 46 they list out “Market, Industry and Other Data” and they’ve used a lot of paid third party sources to discuss the market and their own achievement in it as well. This could aid another social media company on the rise in not only assessing their competition to provide clarity on the market saturation part of their TAM, but it could directly influence the units and price considerations in their TAM as well. An example from Snap’s IPO filings:
4. Web Crawlers
Web crawlers are used for a variety of reasons. For example, Google uses them to index information across billions of pages to power their search engine. There are some brilliant ways to use similar services to help figure out the size of your market. Tools like Ghostery show what technologies certain sites are using across the web, and if you’re a competitive offering, you could use this to observe how widespread your competitor is throughout the market (i.e. how many customers they have). Datanyze is excellent for that as well, though that’s a paid service. You could use more advanced crawlers to see how certain keywords are being used across the internet, to determine how many people are talking about the problem your solution solves (which could hint at the number of potential customers). The list goes on.
Sites like G2 Crowd and Capterra serve as excellent repositories of data on the different types of products out there, who’s using them, and approximately how much people are paying for those. If you’re looking for free data to fill in the pricing component of your TAM equation, I’d suggest checking out G2 Crowd’s Pricing Page feature here:
Don’t you feel a little more comfortable about TAM analyses now?
The process of figuring out your total addressable market is never an easy one (especially given that it’s sometimes a never ending one). Luckily, there’s a lot of excellent and free information out there that everyone from private, to public, to government-based entities are providing for you to make life easier. At Bowery Capital, we help all of our founders, COOs, CROs, and CMOs to figure this out (and these are some of the exact sources we use!). If you’re looking for more tips or ideas to figure out the size of your market, feel free to give us a shout.
If you liked “5 Free Datasets to Help You Figure Out The Size of Your Market” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.
Below we have compiled a list of metrics that could be relevant for most B2B marketplaces and hope that it serves as a framework for tracking KPIs for success.