I believe that the calculation of TAM cannot be accurately ascertained. The Total Addressable Market, also referred to as total available market, is the overall revenue Sales Revenue Sales revenue is the income received by a company from its sales of goods or the provision of services. opportunity that is available to a product or service if 100% market share was achieved. The concept of total addressable market is important for start-ups Start-up Valuation Metrics Start-up Valuation Metrics for internet companies. Creating a viable value proposition Value Proposition Value proposition is a promise of value stated by a company that summarizes the benefit of the company’s product or service and how they are delivered involves estimating the market size, size of the overall investment, competition, growth expected, and the available market size. The assessment helps to determine the actual size of the available market and the prevailing competition for the products offered by the start-up. The top-down analysis follows a process of elimination that starts by taking a large population of a known size that comprises the target market and using it to narrow down to a specific market segment. An example is a start-up technology company that offers an app targeting small businesses that cannot afford premium accounting software. The company relies on industry research that shows that there are 1 billion businesses around the world, out of which 30% lack access to premium accounting software. If the business is offering the application for free but with subscriptions of $100 per year, the estimated total addressable market is $3 billion.
Value theory is used to calculate TAM when a company is introducing new products into the market or cross-selling certain products to existing customers. The value theory approach can be used to estimate Uber’s addressable value. Since users are willing to forego all these alternatives and take an Uber taxi, the company can estimate the value that these users derive from using the Uber taxis and determine how to capture the value in its pricing.
The Total Addressable Market is one of the essential metrics that start-ups and existing companies use to estimate the potential scale of the market in terms of total sales and revenues Sales Revenue Sales revenue is the income received by a company from its sales of goods or the provision of services. An investor should be objective in estimating the available market because an exaggerated value may lead to markets with less potential for growth. The ideal market for any entrepreneur is one with potential growth capacity.
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