How are we supposed to calculate TAM when the beach head market isn't the economic buyer?
Oliver asked 4 years ago
How are we supposed to calculate the TAM when the beach head market isn’t the economic buyer?
In my case the beach head market are using a free product that enables them to discover businesses in this niche. Those businesses fund the platform through a monthly subscription fee.
I’m a bit confused how to calculate the total addressable market size when they’re not actually paying anything.
Any help would be greatly appreciated. Thanks
Bill Aulet answered 4 years ago
There has to be an economic buyers some place or it is not a business. Figure out who you believe will be the economic buyer (make that assumption) and then estimate how much each end user will be worth to the economic buyer. For instance for Google, they estimate that an average user will be worth $30-70 to them because that is how much the NPV of the total advertising profit will be for a typical end user. Then you take the number of users and multiply that by the average value a user is worth to the economic buyer. In the case of Google, the number of potential end users is so big that the $30-$70 times that number is a huge number – that seems to keep growing over time. But as you see, you have to find out who the economic buyer is and how much they would pay for an average customer.