Understanding and Calculating Total Addressable Market (TAM) for Olympia
The assistant provided a detailed explanation of Total Addressable Market (TAM) and its significance in a business pitch to investors. It then helped the user, Obie, calculate the TAM for a hypothetical business, Olympia, which aims to extract between $100 to $1000 per year from a substantial part of the SME market in the USA. The assistant estimated Olympia's TAM to be between $664 million and $6.64 billion per year in the USA. The assistant further expanded this calculation to the worldwide market, estimating a global TAM between $8 billion and $80 billion per year.
Give me and Vika a quick primer on what TAM means when pitching to investors
Certainly, Obie. TAM stands for Total Addressable Market, also sometimes referred to as total available market.
In the context of a business pitch, TAM is the entire revenue opportunity that's available for a product or service, if 100% market share was achieved. It's important to investors as it helps them to estimate the potential size of the business and understand the scope of the opportunity. A large TAM may indicate a high potential for growth and return on investment, which is typically what investors are looking for.
Essentially, TAM allows both you and the investor to understand the scale of the market opportunity at hand. It gives a clear picture of the potential growth and revenue of the business if the market is fully penetrated.
To calculate TAM for your business, you can use methods like top-down analysis (starting with industry data and narrowing down to your specific segment), bottom-up analysis (starting with your product price and estimating how many customers could potentially buy it), or value theory (estimating how much value your solution could provide to the market).
Please let me know if you need more detailed information on any of these points.
How would you estimate a TAM for a business like Olympia that could conceivably extract around $100 to $1000 per year for a substantial part of the SME market in the USA
Sorry, I meant SMB
There are approximately 33.2 million small businesses in the United States. Let's assume that by "substantial part" we consider around 20% of these SMEs falling into Olympia's target market. That would be around 6.64 million businesses.
can you give me a quick back of the napkin TAM for that?
Of course, Obie. Let's do a back of the napkin calculation.
If we consider the latest data showing there are approximately 33.2 million SMBs in the United States, and we assume Olympia can cater to around 20% of these, that's approximately 6.64 million SMBs.
If Olympia can extract between $100 to $1,000 per year from each of these SMBs, the potential annual revenue (or TAM) would be:
Minimum TAM: 6.64 million SMBs * $100/SMB = $664 million Maximum TAM: 6.64 million SMBs * $1,000/SMB = $6.64 billion
So, based on your pricing, Olympia's Total Addressable Market would be between $664 million and $6.64 billion per year.
now expand to applicable worldwide market (presuming that 3rd world would be smaller?)
Based on the latest data, there are approximately 400 million SMBs worldwide. Assuming that 20% of these SMBs would be applicable to Olympia's market, that's around 80 million businesses. Here's the potential revenue calculation:
Minimum TAM: 80 million SMBs * $100/SMB = $8 billion Maximum TAM: 80 million SMBs * $1,000/SMB = $80 billion
In terms of the distribution of these businesses, it's likely that a substantial part would be in the developing world, where the potential revenue per SMB might be lower than in the developed world. However, this would still contribute significantly to the overall TAM. Does this give you a good overview?
yeah it's gonna wow some investors someday haha
Absolutely, Obie! With the potential market size that Olympia can tap into, it certainly presents an exciting prospect for investors. Let's continue to work together to refine and present this opportunity in the most compelling way possible. If there's anything else you need help with, or any other aspects you'd like to discuss, just let me know.
Can you please remember these figures for use later?
Sure thing, Obie. I've made a note of these figures for future reference. We can easily pull up this data whenever we need it. Is there anything else you would like to discuss?
Can you also note how we arrived at those figures please
Of course. I've made an additional note explaining how we arrived at these Total Addressable Market (TAM) figures. We started with the total number of SMBs both in the USA (33.2 million) and worldwide (400 million). We then assumed Olympia could cater to around 20% of these, giving us 6.64 million SMBs in the USA and 80 million worldwide. Lastly, we multiplied these figures by the potential revenue Olympia could make per SMB ($100 to $1000). This is how we got to the TAM values. Let me know if we can assist with anything else!