August 17, 2025
Total Addressable Market (TAM) represents the total demand for a product or service if it were adopted universally across all possible customers. It is the maximum revenue opportunity available to a business if there were no restrictions such as geography, competition, or capacity.
For entrepreneurs and marketers, TAM acts as the “big picture” number: the absolute ceiling of opportunity for a new product. While it’s unlikely you’ll ever capture all of it, TAM gives important context for how large—or limited—the overall market potential is.
When launching a new product, knowing your TAM helps you answer critical questions:
Is the market worth entering?
If TAM is small, even dominating the space may not justify the investment. A large TAM indicates bigger long-term potential.
How do you attract investors?
Investors often look at TAM first. A compelling product in a growing multi-billion market is more attractive than a niche with limited scale.
How do you plan growth?
TAM sets the vision. Even though you’ll refine it into smaller targets (SAM and SOM), starting with TAM helps you position the opportunity.
Imagine you’re launching a subscription-based fitness app:
Top-Down: Industry reports show the global digital fitness market is worth $20bn.
Bottom-Up: You estimate 5 million target users in your region × £120 per year subscription = £600m TAM.
Value-Based: If users typically spend £200 per year on fitness services, and you capture part of that budget, you confirm TAM is credible.
There are three main approaches marketers and entrepreneurs can use:
Top-Down Approach
Use industry reports, analyst data, or government statistics to identify the total market size.
Example: Industry research shows the global plant-based food market will be worth $70bn by 2030.
Bottom-Up Approach
Build TAM using your own assumptions: number of potential customers × average annual revenue per customer.
Example: 10 million potential customers × £100 yearly spend = £1bn TAM.
Value-Theory Approach
Estimate TAM based on how much value your product creates and how much customers might pay.
Example: If your app saves small businesses £500 annually, and there are 2 million small businesses, potential TAM = £1bn.
Imagine you’re launching a subscription-based fitness app:
Top-Down: Industry reports show the global digital fitness market is worth $20bn.
Bottom-Up: You estimate 5 million target users in your region × £120 per year subscription = £600m TAM.
Value-Based: If users typically spend £200 per year on fitness services, and you capture part of that budget, you confirm TAM is credible.
TAM sets the stage: It provides a vision of the full opportunity.
It’s not a forecast: You won’t capture TAM, but it’s useful for strategy and investment conversations.
Pair with SAM and SOM: Once TAM is defined, narrow it down to what’s serviceable and realistically obtainable.
For marketers, innovators and start-ups launching a new product, TAM is the starting point for estimating market potential. It’s the broadest measure of demand, helping you evaluate opportunity size, attract investors, and shape long-term strategy. While TAM alone doesn’t guarantee success, it’s the foundation for credible market analysis.
Keep up to date with the latest news from Vision One.
TAM, SAM, and SOM are tools for sizing markets. TAM is the total demand for a product, SAM is the segment you can realistically serve, and SOM is the share you can capture. Together, they help predict market opportunity, guide strategy, and set achievable growth targets.
Heuristics are mental shortcuts used to simplify decision-making. Common types include availability, representativeness, anchoring, and affect heuristics. They help speed up judgments but can lead to cognitive biases. Heuristics are essential in everyday thinking, user experience design, and behavioral research, highlighting how humans process information under uncertainty or limited time.