Estimating Your Total Addressable Market Calculation: A Guide for SaaS Opportunities

What a Total Addressable Market Analysis Means for Software as a Service

Did you know that a lack of clarity regarding the Total Addressable Market (TAM) causes 40% of startups to fail? This intriguing statistic emphasises the importance of a precise TAM calculation for a company’s growth and sustainability, particularly in the dynamic Software as a Service (SaaS) sector.

 The first step in successfully launching or scaling a SaaS product is determining the size of your potential market. Let’s have a look at how to estimate your Total Addressable Market for SaaS opportunities, how to calculate it, and how it can help you make better business decisions.

Please Explain Total Addressable Market (TAM).

Your Total Addressable Market (TAM) is the potential income stream for your business within a given market. It’s a simple way of looking at it. If you could meet the demand in your market one hundred percent, this would be the theoretical maximum sales volume you could reach. When it comes to software as a service (SaaS) companies, determining TAM can give you a better idea of the potential for growth and whether your product has enough room to succeed.

Several factors are usually considered in a Total Addressable Market calculation, including market trends, competition, consumer behaviour, and economic conditions. Knowing your customer base isn’t enough; you must also know how big that base has the potential to grow. Because subscription models and customer lifetime value (CLV) have such a direct bearing on growth strategies, this insight is particularly crucial for SaaS companies.

A Reliable TAM is Crucial to the Success of SaaS

Total Acquisition Cost (TAM) is an important component of any successful business strategy for software as a service (SaaS) companies. Here are some things you can learn from an accurate Total Addressable Market calculation:

Prospective backers of your SaaS company want to know how big of an opportunity it is before committing capital. Presenting your business as a promising growth opportunity is easier with a well-defined and supported TAM.

Marketing and Sales Segmentation: SaaS companies can benefit from knowing the overall market size because it allows them to more easily target the most lucrative customer segments.

Allocating Resources: With an accurate TAM, you can focus your efforts on the most profitable opportunities by wisely allocating your time, money, or talent.

Estimating Your Total Addressable Market (TAM) While there is no foolproof method for determining TAM, SaaS companies can get a good idea of their potential customer base by following a systematic process. Three popular approaches to calculating your TAM are as follows:

1. A Top-Down Strategy

Data at the macro level, including reports from businesses, academic studies, and government statistics, are the starting point for the top-down method of TAM calculation. First, you’ll look at the total size of the market. Then, you’ll zero in on your particular product or service. If your software as a service (SaaS) product aids small businesses in handling customer service, for example, you could begin by analysing the overall customer service software market and then narrow your focus to small businesses operating in certain sectors.

While this approach does give a bird’s-eye view, it frequently fails to take niche markets or individual customers’ needs into consideration. It could use some more work, but it’s a solid foundation to build upon.

2. A Bottom-Up Method

Using your existing customer data and expanding upon it is the bottom-up approach. You can get a good idea of the total market size by analysing the number of customers your SaaS company serves and the average price per customer. If you have 100 clients in a certain area and your average monthly revenue is $1,000, you can use that number to calculate the potential of that market or region.

Due to its foundation in actual, quantifiable data, this method is often more precise than the top-down approach. But it still relies on certain forecasts regarding the expansion of the market and the acquisition of new customers.

III. A Value Theory Perspective

Your SaaS product’s worth to clients is taken into account in the value theory method of calculating TAM. Your software’s monetary value will be your primary concern, rather than the prices of competing products. The market’s willingness to pay can be estimated by considering the value provided, for instance, if your SaaS product saves $10,000 per year in operational costs for businesses.

Although this method isn’t always easy to pin down, it could provide SaaS providers with a fresh viewpoint on the price point at which they could sell their product.

Important Things to Think About When Calculating Your TAM

You need to consider a number of things that affect your company’s growth potential when you estimate your Total Addressable Market:

Industry Patterns: SaaS is a sector that is changing at a rapid pace. Trends in automation, AI, and cloud-based technologies can increase or decrease your market share, so it’s important to keep an eye on them.

Is there a lot of competition in the same market? If so, how many? Do you see any unmet needs or neglected areas? How much of the market are you actually capable of capturing might be affected by this.

Your ideal clients may vary by location, industry, or company size; therefore, it is important to segment your customer base accordingly. You can improve your TAM calculation by using a more precise method of segmentation.

Models of Pricing: The potential for sales of your software as a service (SaaS) product may change depending on the pricing strategy you employ. In your TAM analysis, you should always think about various pricing strategies.

Ways you can Use Hubspot to Make Your TAM Estimate More Accurate

HubSpot can be extremely helpful. To assist SaaS companies in collecting the necessary data for TAM calculation and validation, HubSpot provides a suite of tools. Market trends, customer behaviour tracking, and insights into your most lucrative customer segments can all be yours with HubSpot.

You can streamline your marketing and sales efforts with the help of accurate data, segment your customers in real-time, and find growth opportunities with HubSpot’s CRM platform. As a result, you’ll be able to choose the best strategy to attract new customers and expand your business.

In addition, you can track how well your campaigns are doing with HubSpot’s analytics tools and tweak them as needed to adapt to changing market conditions. You can keep ahead of the competition and make better business decisions by constantly improving your Total Addressable Market calculation using real-time data.

By working with 9H Digital, you can take advantage of a comprehensive plan for expanding your SaaS business. Beyond simply determining TAM, we offer comprehensive assistance in establishing a strong online presence. We help your company thrive by providing cutting-edge analytics, performance marketing, customer segmentation, and research.

Our team is available to assist you in navigating the intricacies of SaaS marketing and business growth, regardless of your stage of operation.

Is your SaaS company ready to explore how HubSpot can help? Get in touch with Ale, our resident HubSpot expert, to set up a demo and find out how the marketing automation, analytics, and customer relationship management features of HubSpot can improve your TAM calculation and speed up your growth. Book a call here.