Definition
The maximum revenue opportunity for a product under defined assumptions.
Why it’s relevant today
Emerging industries often promote very large market estimates.
Why it matters
TAM frames potential but does not prove achievable share.
3 months ago
Total addressable market
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This is something I had heard of in an entrepreneurship class in high school but was confused on how to get an accurate assessment of. Was it more important to be niche to get an accurate representation of the total market? I feel it's important as an investor to understand how a company sees their TAM to gauge how sound their business model is.
A common practice to understand how big the market is, comes from estimating the total revenue being generated by companies. You can then adjust that years into the future using a growth rate you think is reasonable for the future. Many times these numbers are just projections and have high variance. For example, with AI you might get numerous estimates of the TAK by different people. There’s no one right answer.