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Total Addressable Market
Definition
TAM stands for the total available market for a specific good or service. Everyone who has a need or desire for that commodity is included in the count. It is estimated to determine the size of a product's market. As a result, the market's value is established.
Caveat
TAM is a big overview of available users. However, that doesn’t translate into being able to target all the users in one go.
To continue with the same food delivery app, even though the TAM is going to be large, an organization cannot target to serve them all from the start, since the users will be distributed unequally in tier 1, tier 2, & tier 3 cities. And to provide good customer service, they’ll have to spend capital for distribution & other maintenance. Hence, initially, they’ll focus on tier 1 cities as there is a majority of users to whom they can offer their service.
Example
For a food delivery app, their TAM is going to be the number of people who order food online.
An air purifier TAM is the percentage of the population that’s living in areas of high pollution.
Bisleri’s TAM is going to be the number of users who prefer buying packaged water.