Introduction

In a current collaborative Hackathon sprint by the ADA software engineering Program, I was asked to find the Total Available Market (TAM) for our start-up product.

Total Available Market also referred to as TAM, is the total amount of money you can make selling what you’re selling. Another way of thinking about it is the total amount of demand that exists in the market for your product or service. Doing a thorough TAM analysis is a crucial step for any startup, without this information, a company might chase after every potential lead or opportunity and waste time and money pursuing dead ends.

How To Calculate TAM

It can be difficult to calculate the total available market, especially if many of the competitors in the space are privately held and secretive about sales figures. There are three options for calculating TAM:

1. Top-down, which takes the size of the TAM from industry research

2. Bottom-up, which uses data from your company’s early sales to estimate the market

3. Value theory, which estimates how your product’s value will affect buyers’ behaviour

Procedure

I used the Top-down method to calculate TAM for our start-up. The following were the steps I took:

• Start with a population and then logically apply demographic, geographic and economic assumptions to eliminate irrelevant segments.

• Check for accurate and open statistics for macroeconomic data. Some reliable Sources include the UN, OECD, The World Bank and CIA World Factbook.

For example, the following was our TAM calculation for Youth Corpers posted to Eastern Nigeria.

• We know there are 80,000 Youth Corpers posted to Eastern Nigeria per year who are non-indigenes

• We also know that 25.4% of those people are willing to learn the Igbo language for easy communication

• By multiplying 80,000 by 25.4%, we estimated a market size of 20,320 per year.

While TAM may be calculated for some time, it will change. Markets shrink and grow all the time based on demographic changes, business cycles, and technology adoption, so when used as part of a forecast, those elements should also be considered and calculations should be revisited regularly.