Calculate the Total Addressable Market (TAM) Size & Full Product Life Cycle

1.

Calculate the Total
Addressable Market
(TAM) Size & Full
Product Life Cycle
Use
NVC – Session 4
Alisher Ismailov

2.

Agenda
What is market
sizing?
Why do we do
market sizing?
What is Total
Addressable Market
(TAM)
Top Down & Bottom
Up Approach
How do we value
TAM?
Full Product Life Cycle
Use
Exercise

3.

What is market sizing?
• Market sizing uses informed estimations to
determine the potential market volume and
sales revenue. Knowing how to calculate a
total addressable market is just as
important for those looking to launch in a
new market as it is for start-ups.

4.

Investors LOVE startups that take off in
big and dynamic markets.
Why do
market sizing?
Investors NEED ambitious companies
that will take a big share of a big
market.
Investors HATE when the team is not
aware of the size and trends of their
product’s market.

5.

Allows organizations to estimate potential profit from
a new product, service, or business.
Why do
market sizing?
Helps investors decide whether to invest in a
business or not.
Aids the development of an effective marketing
strategy that highlights the needs and potential of a
core market.
Gives a clearer picture of hiring needs prior to launch,
helping to drive an optimized recruitment strategy.

6.

What is Total
Adressable Market
• The Total Addressable Market (TAM), also
referred to as total available market, is the
overall revenue opportunity that is
available to a product or service if 100%
market share was achieved.

7.

Example
Imagine, the total value for toothbrush sales in the Uzbekistan each year:
Add up figures for toothbrush sales per grocery chain, pharmacy, and retailer
Estimate how many toothbrushes the average person buys, multiply that by the number of
people in the UZ., and then by the average cost of a toothbrush

8.

Approaches
to Calculate
TAM
Bottom-up Approach
Top-down Approach
• Uses Primary Data
• Uses Secondary data
• Bottom-up market sizing
starts small normally with
one target market then
gradually gets built up.
• Starts with whole market
and then refine it according
to realistic estimations of a
target market.

9.

Difference between Top Bottom &
Bottom-Up Approaches

10.

Top Down Approach
• Find out what the customer currently spends:
• How much does each product cost?
• How many of each product does the
customer buy for the end user?
• What is the average lifetime of the
product before it’s replaced?
• The annualized revenue is the total cost
per end user of the product divided by
the lifetime.

11.

Top Down Approach
• Find out the customer’s available budget:
• When you look at the market today, how
much is being spent overall to solve the
problem that you are looking to solve for
a typical user?
• How much money does the customer
have (household income, business
revenue, etc.)?
• What fraction of that amount could you
see being allocated to solve this
problem?

12.

Top Down Approach
(Limitations with data
• Find out the Comparable:
• Comparable are similar products or
data points in different markets that
you can use to bolster your TAM
analysis.
• For instance, if you are creating a
product whose revenue is supported by
advertising, what are current
advertising rates for similar
demographics to your end user?

13.

Other
Important
Considerations
for TAM
• Profitability: How profitable is the revenue? In most
businesses, your goal in the Beachhead Market is to get to
positive cash flow if possible prior to expanding
• Time to Conquer Market: How long will it take to succeed
or fail in this market?
• Compound Annual Growth Rate (CAGR) of Overall
Revenue: Is this a market that is just starting up and has
great growth potential?
• Anticipated Market Share: Is this a winner-take-all market
driven by networking effects? A market that will have many
players and no player will get more than a small fraction of
the market is not good

14.

TAM Top
Bottom
Approach

15.

Example of
On Demand
Korean
Dramas

16.

Exercise
Finding Market Size of Detailing
centers in Tashkent
Students are divided into 4 groups. You may use the Internet to understand what
Is detailing center and to find TAM for Tashkent.

17.

Full Life Cycle Use Case
• The Full Life Cycle Use Case provides valuable information for future
steps and helps the team understand potential barriers to adoption
from a sales perspective.

18.

Stages of Full Product Life Cycle Use

19.

Step 1:
Customer
awareness
and the need
to do
something
• How does your customer
know they have a
problem?
• What activates your
customer’s acquisition
process?
• What do they focus on
and what do they value?
• This information can be
used to develop your
solution and value
proposition.

20.

Step 2. Find
your product
or service
(solution)
• How does your customer
search for and find your
solution?
• Where do they hang out?
• This information can be
used to develop your go-tomarket strategy and
calculate cost of customer
acquisition

21.

Step 3.
Analyze your
product or
service
(solution)
• How does the customer
assess the value your
solution provides?
• How does your customer
analyze the competition
to make a purchasing
decision?
• This information can be
used to develop your
minimum viable business
product, your value
proposition, competitive
positioning, go-tomarket strategy, and
calculate cost of
customer acquisition.

22.

Step 4.
Acquire and
pay for you
product or
service
(solution)
• How does the customer buy
and pay for a product or
service?
• This information can be used
to develop your business
model, pricing framework and
calculate cost of customer
acquisition.

23.

Step 5.
Install your
product or
service
(solution)
• How does the customer
install your solution? How
hard is it to install and train
their staff?
• This information can be
used to develop of your
solution, your value
proposition, and
competitive positioning.

24.

Step 6. Use
your product
or service
(solution)
• How does the customer
integrate the use of your
solution into their
operations?
• This information can be
used to develop your
solution, your value
proposition, and
competitive positioning.

25.

• How does customer measure the value they gained from your solution?
• This information can be used to develop your value proposition, competitive
positioning, assess customer satisfaction, and iterate your solution.
Step 7. Determine value gained from your product or
service (solution)

26.

Step 8.
Receive
support for
your product
or service
(solution)
• How does your customer
receive support? Is your
system automated or
personal?
• This information can be
used to develop your
customer service and
management program,
business model, pricing
framework, and calculate
cost of customer
acquisition.

27.

Step 9. Buy more
product or service
(solution)
• How do you engage your customer to buy
more of your solution? Remember – the
best customer is the one you already
have!!!
• This information can be used to develop
your go-to-market strategy, business model,
pricing framework, product expansion plan,
and to calculate customer lifetime value.

28.

Step 10. Spread
awareness
about your
product or
service
(solution)
• How does your customer
tell others about your
product?
• This information can be
used to develop your
tools for capturing
customer satisfaction
and testimonials, and to
develop your go-tomarking strategy with
word of mouth
incentives.

29.

A Paradox
1. As of June 2022, Android users were
able to choose between 3.2 million apps,
and Apple’s App Store had 2.5 million
available apps. Yet very few of them have
been successful. Why do most cell phone
apps fail to become economically
interesting or viable? (Select one)
a. They don’t have the right functionality.
b. People don’t know about the app.

30.

Conclusion
It is very important to focus
on markets with right size,
growth rate, profitability
and access.
Our goal of this exercises is
to know our customer
better than anyone else
and to develop customer
intimacy leading to
product-market fit