How to Understand and Expand Your Total Addressable Market (TAM)

Imagine this: You walk into the boardroom excited to tell your leadership team you blew past your quarterly numbers.

After an initial wave of excitement, however, they ask: “If we bump up your budget, how much more revenue can you generate?”

As a sales leader, you likely don’t have to imagine that—this is an all-too-common reality.

The question you have to answer: is making more money even possible?

Of course, but to find it, you need to understand—and expand—your total addressable market (TAM).

How Do You Define TAM?

TAM, or total addressable market, is the market size for a product or service. Sales leaders and other leadership team members use TAM to understand a market’s potential revenue opportunities.

How Do You Calculate TAM?

To calculate TAM, multiply your average sales price by the number of current customers. The result is your annual contract value (ACV). Then, multiply your ACV by the total number of customers—or potential customers—who meet your ideal customer profile. This is your TAM.

Example:

Say you’re a sales leader for a media company selling OTT ad inventory, and your ACV is $500k. To find your TAM, multiply this by the number of companies buying—or potentially buying—OTT ads. If that number’s 1,000, your current TAM is $5mm.

How Do You Expand Your TAM?

Calculating TAM gives you a baseline and a way to set expectations with your leadership team, but don’t take that number as gospel. Instead, look for ways to expand it and find more opportunities to gain market share.

Ask yourself these six questions:

• ​What are the common characteristics of our current customers and prospects, e.g., price point, size, close time, etc.?
• ​Which industries or categories are we winning?
• ​Where are our current customers located?
• ​How much do our current customers spend on ads? (Knowing this will help you craft your outreach strategy.)
• ​Which new entrants are making noise and gaining market share? More importantly, what do their advertising strategies look like? Are they mirroring what others are doing or blazing their own trail?
• ​What’s causing the market to grow or shift?

The answers to these questions will come from internal sources, like your CRM or sales team, and will serve as the foundation for your ideal customer profile (ICP). From there, you can research to find opportunities that aren’t currently on your radar.

At the same time, look outside your walls for expansion opportunities. Industry publications, competitive analyses, LinkedIn Sales Navigator, and industry events can often bring you face-to-face with opportunities ripe for picking.

By asking yourself these questions and diving into the information around you, you can uncover some hidden gems that may have otherwise gone unnoticed.

Thousands of Advertisers Are Spending Big in 2022—Go Get Them

Despite the COVID-19 pandemic and uncertain macroeconomic times, advertisers are still spending big.

Between January 2021 and July 2022, nearly 13,600 companies have spent more than $500k each to promote more than 25,000 brands. Collectively, these advertisers have spent more than $182 billion.

Imagine if just 1% of those companies aligned with your ICP and just 50% of those were undiscovered gems—that’s 68 new companies you could potentially pitch.

What’s more interesting—and likely more advantageous to you—is how these advertisers are spending.

Of the 13,600 companies, most come from relatively smaller buckets—39% spent between $500k and $1 million, while 47% spent between $1 million and $9 million.

The collection of smaller fish in this massive pond presents an opportunity to get advertisers with big budgets to spend even more—maybe on emerging ecosystems like OTT and CTV.

Pro tip: If advertisers aren’t ready to increase spending, work with your marketing team to put them into a nurturing bucket. More often than not, these advertisers will eventually reach a point that warrants additional spending. When they do, reach out.

Another opportunity to expand TAM comes from how advertisers are (or aren’t) spending.

For example, 6,000 of these advertisers are only investing in digital.

While you can’t fault them for going all-in on digital, they could be leaving gains on the table by neglecting traditional formats. The same can be said about the 900 advertisers only investing in traditional formats.

Here’s a full breakdown of how advertisers diversified their marketing mixes:

• ​Only digital ads: 6,000 advertisers
• ​Print & digital ads: 3,500 advertisers
• ​Digital, print & TV: 2,000 advertisers
• ​Digital & TV: 1,000 advertisers
• ​Only print ads: 720 advertisers
• ​Only TV ads: 180 advertisers
• ​Print & TV ads: 50 advertisers

The spectrum of strategies, despite the ubiquity of advertising, illustrates that there’s not a one-size-fits-all approach to advertising.

Almost all of these advertisers are leaving inventory on the table—and more will undoubtedly follow suit.

Each month this year, nearly 700 companies (and more than 1,500 advertisers) have joined the $500k ad spend group, which illustrates that what your TAM is today probably isn’t what it’s going to be tomorrow. This is especially true as new ecosystems open their doors to advertisers.

What’s Next?

Dialing in on TAM is great, but your effort will be for naught if you can’t turn those insights into closed won and generated revenue.

So, how do you ensure these newfound opportunities turn into real value?

A few things:

• ​Rank your new opportunities: Take those leads and rank them to ensure your best sales reps target the accounts with the most potential to impact the business.
• ​Land and expand: Drill down into each company and look for ways to provide additional value. Filtering a company by product line can uncover untouched departments within a company that you can engage.
• ​Study your losses: Analyze what’s gone wrong and why you’re losing deals. What do your closed-lost deals have in common—and how can you change that narrative to close more business?
• ​Work with marketing: Not everyone you come across will be ready to buy. Work with your marketing team to put prospects in a nurture bucket so that you can stay in front of them until they’re ready.
• ​Hold your reps accountable: Your job as a sales leader is to put your reps in a position to succeed. This includes holding them accountable for the new opportunities you’ve given them.

Take these steps, and the work you put into understanding and expanding your TAM will become net-new revenue for your company and help you realize your market potential.