Dictionary / How companies make money
What Is Total Addressable Market?
Total addressable market, or TAM, is how much revenue a company could make if it sold to every possible customer. It shows how big a business could one day become.
A simple example
Say 10 million restaurants worldwide could use your booking software, and each would pay $1,000 a year. Your TAM is $10 billion a year. You will never win all of it, but it tells you how much room there is to grow.
Why investors care
A small company in a huge market can grow for decades. A company that already owns most of a small market has little room left. That is why fast-growing companies love to show big TAM numbers.
Be careful with TAM
Companies often stretch TAM to look exciting. A shoe startup might say the whole clothing market is its TAM. Ask what share the company can really win, and against which competitors.
See it in real companies
Open a company to see what it sells and how it makes money.