4 techniques and 6 tools to find your total addressable market.
You are now ready to start or accelerate your global journey. You have ticked all the preliminary boxes — conf. this article — and now want to sell your plan internally and forecast your potential growth. You need to measure your potential opportunity and you have 3 layers you can look at: Total addressable market (TAM), Served available market (SAM), Target market. The TAM is usually the largest as it includes all the markets you do not serve or target yet. For your growth strategy, this will be the one you want to look at the define the next markets you want to grow into! Usually, product or marketing teams are the best positioned to do identify TAM via segmentation. They’ll use their customer expertise and will involve other teams during the journey.
If you have not done it yet, you should do your market segmentation. Market segmentation is the process of defining and subdividing a large homogeneous market into identifiable segments having similar needs, wants, or demand characteristics. A market segment should be homogeneous, measurable, substantial, accessible, actionable and responsive.
In B2B, most frequent segmentation criteria are the industry (i.e. pharmaceuticals), merchant size — small, medium, large, multinational — , professional profile (i.e. Head of Marketing). In B2C, you might want to look at demographic, geographic, behavioral and “psychographic” variables. For example, age, sex, travel time per day, income level.
To be successful with your market segmentation, the most challenging part is the selection of the most relevant criteria. Having the right expertise on the customer can be key for that. You can use various alternative or complementary techniques to get there.
You can segment market using clustering when you have a suitable volume and quality of data. Indeed, clustering will require significant statistical work. This approach ‘clusters’ the consumers/audiences into related sets, based upon the variables in the data. You have various techniques available when it comes to clustering. For example, K-means, TwoSteps or Latent class. We’ll dig into this in upcoming article.
2. Segmentation trees
Segmentation trees are always a good method to get to a qualitative split of your target audience. It delivers results without the need for a large amount of data. Expertise is the key element needed here. Find below an example of output.
3. User & buyer personas
Building personas can be a key success attribute for many aspects of your business. Personas are fictional and generalized vision of your ideal customer. It should be quite granular in order to have a precise and very concrete understand of the user created. It helps for product development, inbound and outbound marketing. It can also be used for your market segmentation as a way to identify or confirm relevant variables that will define your segments. All teams facing the customers should be involved in this exercise (product, customer care, sales). Ideally, interviews with customers should also be conducted for accurate results.
Then, you need to size your target segments in a quantifiable manner.
4. Top down market sizing approach
Usually, to calculate your total addressable market you start with a large number and then narrow it down based on the criteria of your segment. You need to find the data related to the variables and criteria used for your market segmentation. For example, if you provide a product or service to business travelers. You’d first look at the country population, then look at active population, then at the %age of active population travelling once a year, once a month, once a week, etc. When you don’t have the time, willingness or budget to outsource these exercises to a consultancy firm — Frost&Sullivan, Forrester but also Bain, McKinsey, BCG, etc — you can use some of the below tools and data sources below.
Tools to build user & buyer personas:
1. HubSpot Buyer persona template
Easy-to-use template designed by HubSpot team downloadable here.
Tools to get access to market data info:
2. Government data
Governments gather and distribute a lot of information about industries and consumer demographic for their respective countries. For example, in the US, https://www.data.gov . In Europe, https://open-data.europa.eu
3. Trade groups
They can be international or national. They often provide with ‘fresh’ information about the industry. For example, in the US, the NRF — national retail federation — provides a lot of information on retail industry on their dedicated insights platform. While it is unfortunately not always as detailed in all industries and all countries, this is a pretty good way to access valuable info.
Interesting tool built by CBInsights that bring together market, industry and competition figures. You need 2 minutes to get started but can easily spend hours on it to deep dive on your areas of interest. You can go as deep as the industry size per state or the distribution per company type (Public, VC, etc).
Worldwide Financial and Economic data sources. Can be accesses via API, SDKs or Excel. Seems to have a lot in free access as well as other data info available at a cost. See here an example of how to get access of the info via Excel.
A nice tool to use once you want to translate your data points into actionable figure. Last path for Total Addressable Market calculation:
A spreadsheet for things that aren’t certain. Helps you manage uncertainty of your estimate when you have guess based on range. Seems very userfriendly.