How do I calculate a total addressable market (TAM) or market size?

Probably one of the most asked questions when it comes to building out a new feature or product is how big is the total target market? Often at times, market sizing seems like a mystical black art, but I assure you – for the most part, it is very simple. Outside of paying an agency to do this for you, here’s how you can do it for yourself:

  1. You Google it. This is a best case/worst case scenario. Sometimes for popular markets, a lot of research has already been done and you can find/buy it online already. The major con of this is that since it’s so popular, it probably means you’ll have a lot of competition attracting this market.
  2. You take an educated guess. Chances are you won’t find the exact cut of the market you’re looking for in existing research. So you’ll need to use proxy metrics and guess proportions off of existing data. For example, say you want to know the market size of users who would use a parking app in the state of Ohio but you only have stats on the number of Americans with cars. You could use the percentage of the US population that lives in Ohio to figure out a ball-park number of car owners in Ohio. It’s not exact, but it’s logical and you can walk an audience through your thinking.
  3. Go measure it yourself. Say you wanted to figure out how many people eat at Subway restaurants in Montreal every week. You literally could go to every store and count. While I don’t recommend THIS much detail, it’s an option. Typically, you’re looking for an order of magnitude not exact numbers.
  4. A mix of the all of the above. Obviously, you can take each technique above and mix them together. And this is 100% acceptable – just remember to state your assumptions and to revisit this sizing regularly. A strong market today could be come a weak one tomorrow.

Now, this total number is great. But remember it’s very useful for projections to calculate how many of these users you can actually reach by applying a realistic conversion rate to this total market over time.

 

About Rommil Santiago

A Toronto-based growth marketer looking to improve the world.
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