What is total addressable market?
Your total addressable market (or TAM) is the overall revenue opportunity available for a product or service, taking into account all possible customers or buyers in the market. In indirect sales, it’s important to understand your TAM as it can help guide your channel strategy.
Imagine you’re a cybersecurity firm. Your software might be only suited to enterprise businesses who need advanced security measures. By calculating how many businesses exist, and how much they typically spend on security software, you’d arrive at your TAM. This calculation helps you understand the maximum potential for your sales.
In the context of channel partnerships, knowing your TAM can:
- Help set realistic sales targets: Knowing the limits of your market can help avoid setting unachievable goals.
- Guide your partner recruitment: If you have a large TAM, you might need more partners to cover it, and vice versa. Or you may need partners who specialize in different niches.
- Inform your product development: If the TAM is smaller than expected, you might decide to broaden your product’s appeal.
Remember, your total addressable market is an estimate of opportunity, not a guaranteed result. It’s the top-line potential if you captured 100% of the market—which is likely not possible. But understanding your TAM can still provide valuable insight as you develop and refine your channel strategy.