Marketers are lost without TAM: Total addressable market is a road map that demarks the makeup and size of the market being addressed; without it, the marketer knows neither whom they are addressing nor how they should go about it.
TAM should therefore be informing B2B marketing strategy, benchmarking objectives, and providing useful expectations for potential growth during the company's journey.
And to do all of that, TAM must be measured correctly.
The pitfalls of determining TAM are ubiquitous, and the temptations plentiful. It is often more convenient to cut corners and measure selectively in the short term. But to avoid the malinvestments and missed opportunities that come with miscalculating and misusing TAM in the long-term, marketers must be attentive to the hazards along their way.
Here is an overview of the 10 most common mistakes B2B marketers make when measuring TAM—and how to avoid them.
1. Overly Relying on Top-Down Analysis
Top-down analysis refers to using broader industry data and market reports to create a deductive estimate. This kind of analysis is valuable for high-level overviews, but it fails to account for the specific characteristics of the product or service that the company offers.
Marketers should always combine top-down analysis with a bottom-up analysis that estimates the company's TAM using actual sales and pricing data and market-specific insights.
2. Ignoring Geographic Restrictions
Many products and services are geographically restricted, and are therefore unavailable to portions of the market that lie within the unserved regions. Local legislation, logistical difficulties, and company policies can all render different regions unreachable.
Marketers must factor those restrictions into the TAM calculation to avoid building campaigns around unreachable demographics and creating unrealistic expectations.
3. Generalizing the Target Demographic
All prospective clients are not created equal. Different groups of companies—potential customers—will have varying needs and budgets, and failing to factor those nuances into a TAM model will lead to the misallocation of valuable resources.
Marketers should analyze the addressable market for prospect differences to identify natural borders and segment accordingly. Doing so will allow companies to measure and plan for targeted marketing campaigns.
4. Overlooking Product Limitations
Certain products will not be marketable to the full range of prospects within a given industry.
Companies that fail to recognize when their products or services are limited to a specific niche, or when certain features make them unattractive to portions of the market, will end up with an overinflated TAM.
Marketers must be careful to include only the prospects that have a need for the company's specific product.
5. Using Outdated or Irrelevant Data
Analysis is only as good as the data it's based on.
Marketers who use data that is outdated to calculate their TAM will find themselves trailing behind the ever-changing and oft-capricious whims of the actual market. Those who use data from tangential or unrelated industries will find themselves chasing the wrong market entirely.
Marketers should only ever use the latest and most industry-relevant data.
6. Assuming 100% Market Share
Everyone may know that TAM does not directly equate to future market share, but many marketers will nonetheless leap over that gap when strategizing or communicating their plans. Such an oversimplification can leave marketers blind to some very real challenges.
It is worth keeping the level of market saturation and the strengths of the competition in mind whenever TAM is referenced.
7. Failing to Account for Price Sensitivity
As discussed in mistake number three, different prospective clients will vary in their willingness to pay for a product or service. That, together with the fact that demand is likely to shift over time, means that assessing a company's TAM according to a single price point is insufficient.
Marketers should consider a range of prices or conduct market research to understand the price-demand relationship within their TAM.
8. Confusing TAM, SAM, and SOM
Many marketers will, often without realizing, use their TAM interchangeably with serviceable addressable market (SAM) and serviceable obtainable market (SOM), leading to unrealistic market assumptions.
TAM, SAM, and SOM are distinct concepts, and taking one for another will result in misguided strategy.
SAM represents the portion of the TAM that a company's products or services can realistically serve, whereas SOM represents the actual market share the company is able to capture.
9. Failing to Update TAM Calculations
The dynamic nature of all markets means that any given TAM estimation will eventually become outdated.
Marketers will often make the effort to calculate a company's TAM only once, and then proceed to build business strategy around that snapshot for years—effectively targeting a market that no longer exists.
Marketers should regularly integrate new and relevant data into a real-time model of the company's TAM.
10. Presenting an Inflated TAM to Investors
Presenting investors with an impressive TAM can be a tempting means of generating excitement. Exaggerating the TAM, however, will only create unmeetable expectations and lead to difficult questions during due diligence.
Investors are interested in realistic, well-researched numbers, and they will appreciate frankness far more than a surprise down the line.
* * *
TAM is the basic road map for any marketing campaign. B2B marketers who are not diligent and vigilant in their use of TAM are likely to find themselves disoriented and their efforts ineffective.
However, by steering clear of the 10 mistakes outlined in this article, marketers can build a TAM model that they—and their company—can rely on for sustained and intentional growth.
More Resources Related to Total Addressable Market & Marketing Strategy
It's Time for Chief Market Officers to Play Offense
Content + Data: The Pillars of a Successful Demand Gen Strategy
Building a Partnership Strategy for Successful Global Expansion
