TAM vs. Target

As you review your marketing plans, terms like Total Addressable Market (TAM) and Target Market may surface in your planning, and you could be tempted to use them interchangeably.

However, your TAM and your target market are related but slightly different. Treating them as synonyms may be a mistake.

First, let’s understand the difference between the two terms. Your TAM is an estimate of the total size of the market for your product or service over the long term. For example, if you sell left-handed spatulas, your TAM would be anyone who is left-handed.

Your target market is the person or company you plan to focus on in the short to medium term. Using the left-handed spatula example, you may decide to launch your utensil to restaurants, so you decide to target professional chefs who happen to be left-handed – a sub-segment within your TAM.

The trick to writing an effective marketing plan is to pick a target market within your TAM that is large enough to meet your medium-term sales goals (i.e., the next year or two), but not so large that your messaging will become diluted.

Your TAM still matters even though the secret to better marketing is narrowing your target to a segment within it. Your TAM remains important as you talk to investors or potential acquirers. Acquirers and investors place a premium on growth, so they are going to want to understand the total size of the market that is available for your product, even though you may have no intention of targeting them in the short to medium term.

Your TAM is important to the long-term value of your company, but tightening your target market in the short term, may be the key to meeting your goals for the upcoming year.

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Franne McNeal, MBA Significant Business Results, LLC Significant GPS Small Business Growth Services