TAM Stands for Total Addressable Market
Sometimes also referred to as the total available market is the total overall available revenue if 100% market share was achieved by a product or service. TAM is used to offer market validation and gain investors. As a business owner, it is always a good idea to know what the TAM for your product is, but as an SBIR applicant, it is essential.
How Does TAM Relate to SBIR?
SBIR is not just about designing a great product. There is a substantial focus on marketability and commercialization as well. Reviewers will be looking for someone who has a sound marketing plan, as well as a good understanding of business and commercialization practices in general. In order to remain competitive with your SBIR proposal, it is important to demonstrate you understand marketing and sales forecasting. One way you can do this is by including your product’s TAM in the proposal.
How To Calculate
There are three primary methods behind calculating TAM.
Top-down-extrapolates the TAM from industry research and forecasting.
Bottom-up-uses data from a company’s early sales to estimate TAM.
Value theory-estimates how product value will affect customer buying behavior
Regardless of which method you use to gather data, the following formula is a great way to calculate TAM
TAM = (Annual Contract Value) x (# of possible Accounts)
TAM is important by showing investors (or SBIR reviewers) a way to estimate how much market availability there is for a given product and will also help them predict the possible revenue associated with that product. This is an important figure to know for companies developing new products or ideas. While it may sound intimidating at first calculating TAM is an important aspect of creating a sound market validation or commercialization strategy, and it is an important figure to share with investors and SBIR reviewers.
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