In a perfect world, your business would achieve 100% of the market share. It is not just a figure to dream about though, it has real significance when establishing the value proposition for your business! The figure called Total Addressable Market or TAM helps you gauge the size of your market, and whether or not you have the capabilities to service it. TAM is usually calculated in annual revenue or unit sales.
For example…
Cara has decided to open up a Mexican restaurant in her rural hometown. She knows that the town’s population is 200,000 people. Of these 200,000 people, research reveals that only 100,000 would eat at a Mexican restaurant. If the average meal at this restaurant for one person costs about $25, this would mean the TAM for Cara’s restaurant would be two and a half million dollars annually. That sounds like a nice, big figure, but remember in calculating TAM, you’re assuming 100% of the market share!
