Your business is only as big as your market. For companies launching new products or applying for additional funding, calculating the total addressable market (TAM) is critical to determining their potential success. TAM is approximately the amount of money a company could generate if it held a complete monopoly on the market. While that’s not realistic, it is a useful comparative factor.
However, there’s a lot of confusion about the total addressable market in SEO and how to calculate TAM. So, that’s what we’re answering in this post.
Find out more below.
What is Total Addressable Market (TAM)?
In a nutshell, total addressable market (TAM), also called the total available market, is the revenue opportunity available if your company achieves a 100% market share for your product or service. Put another way — it’s also the total amount of market demand for a product or service.
TAM is a critical metric for startups, as it helps generate a value proposition and estimate potential growth. However, TAM is also useful for SEO: forecasting traffic potential based on your keyword sets and allowing you to prioritize optimization activities.
Your Total Addressable Market definition isn’t the same as the total market. The latter assumes there’s no competition or alternate products – even Coke compares itself to water. Instead, your TAM is a fraction of the larger market related to the potential users aligned with your product or service.
How to Calculate Total Addressable Market?
We’re using TAM in the SEO sense – not for making money, but users to reach. So, for example, if a startup launches a customer payment app, it would start out by showing that there are around 1 billion businesses worldwide.
Say 10% of these businesses accept non-cash payments; that figure becomes 100,000,000 potential customers. However, only 5% of these allow digital or smartphone payments, resulting in 5,000,000. Therefore, if using the app generated, on average, $300 per year per business, the TAM would be $1,500,000,000.
For SEO, the calculation is a bit different:
All Keywords in Your Segment x Average Keyword Search Volume = TAM
Let’s explain: you’re targeting specific keywords within a segment of Google. For example, if you’re a children’s toy company, your keywords will come from relevant sections, e.g., children’s toys or play equipment.
All of those keywords collectively have an average search volume. Multiplying the two together (or adding up the search volume for all your keywords) estimates your TAM.
The Total Addressable Market formula by other industry experts are as follows:
Potential Market x Competitive Position = TAM
So, you could multiply all the users of Google – 4.3 billion – by the percentage of users applicable to you. As a Total Addressable Market example, if you’re a Texas business, you’d identify the share of users in Texas and divide it by the whole.
The problem of such an approach is apparent: it’s non-specific. Plus, calculating your competitive position is substantially more complex than summing the search volume of keywords.
How to Use Your TAM
You can calculate TAM for a product, content marketing strategy, or even a single blog article. Simply identify all the keywords relevant to the topic in question and multiply them by the average search volume.
(Note: This method tends to slightly overestimate results, as some searches come from the same user.)
Furthermore, you can estimate your actual traffic based on your Total Addressable Market by multiplying by the CTR per ranking. For example, posts ranked #1 on the search engine results page received 28.5% of all traffic. For positions second and third, the CTR was 15.7% and 11%, respectively. By the tenth post, the CTR was just 2.5%.
So, for example, if you rank for around 800 keywords in the US and the average search volume is 5,000. Then your TAM would be 4 million. However, assuming you ranked number #1 for all keywords, you could reasonably expect site traffic of 1.14 million.
In addition to estimating your site traffic, TAM data can also forecast leads and transactions:
Lead generation is the ultimate goal of content marketing. You can estimate the potential number of leads based on your Total Addressable Market. For example, say your total traffic (derived from TAM) is 115,000. Based on your current site traffic, you receive 20 site views per lead – or a 5% conversion rate.
You can then model traffic estimations for 10 to 100% of the potential.
|Percentage of Total Site Traffic||Site Traffic||Leads|
Getting a real number to work with helps identify retention rates. Moreover, you can factor in churn rates or calculate the lifetime value of a customer. The possibilities are endless.
Transaction forecasting is a bit trickier. But for eCommerce stores, it’s a valuable exercise. Like before, we’re calculating a result based on your site traffic. Except that we’re replacing leads for a transaction. So you need to know how many transactions you’re receiving as a percentage of site traffic and the average price of a transaction.
Let’s say you have a 6% transaction rate, total organic traffic is 90,000, and the average transaction price is $58.
|Percentage of Total Site Traffic||Site Traffic||Transactions||Revenue|
Based on these figures, you can estimate your return on investment (ROI) for your total site traffic – purely relying on your Total Addressable Market calculation for the underlying insights – useful, right?
Now you know how to calculate TAM and what to do with it – how will you use this key metric to change your business? We can help you with that. Our team experts can guide you through all these Total Addressable Market processes. Contact us now!