What are some methods to estimate Total Addressable Market, especially for industries with non-straight-forward business models (NOT volume vs. price businesses, but rather balance sheet businesses, real estate, etc.)?
(Assuming you don’t have access to industry/research reports)
| +89 | Nothing to do at work & bored to hell | 9 | 5h |
| +67 | Do people over-index on 'moats' | 20 | 1d |
| +51 | Predicted Net Worth in Trodden Finance Path by 60? | 20 | 5h |
| +44 | Biggest (avoidable) failures in PE Investments? | 24 | 2h |
| +38 | Why is ROIC never really a topic when looking at companies IRL | 11 | 3d |
| +26 | SGE Final Round (Investment Summer Analyst) - Case Study & Technicals? | 13 | 6d |
| +19 | Senior IR Lifestyle | 3 | 5d |
| +12 | How to approach Buyside Recruiting | 3 | 4d |
| +12 | Honest opinions needed about lateraling | 4 | 1d |
| +12 | NY LMM PE Recruiting | 3 | 23h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Also curious
For markets that are much less well-defined or speculative, I often size based on the potential cost avoidance that a solution/product can deliver to a customer, then assuming a % willingness-to-pay.
E.g., sizing the market for a hypothetical B2B SaaS solution marketed to automate a niche compliance process in a specific industry:
So total opportunity (assuming 100% willingness to adopt) = 10,000 FTEs * 20% of hours * $150k/yr * 50% automation = $150 Mn
Then, let's assume that based on precedent products in this industry, customers are willing to pay ~33% of their cost savings as subscription fees for a solution.
Then TAM (defined as the total revenue pool) = $150 Mn * ~33% = ~$50 Mn/yr.
Now, there may be further upside to this market size (e.g., this product enables faster time-to-market for customers and therefore a revenue benefit), or the TAM could grow as % automation grows, or total industry spending on this process grows etc. But using this base, we can now make assumptions on market penetration, adoption etc. to start translating an abstract market sizing into revenue projections.
This is really detailed. Do you think this is the response expected for a 1 minute answer? Typically I've been asked stuff like TAM for steel fencing or wedding bouquets or law school tutoring services...which are pretty much estimate volume by geography * price exercises. Now that you've given a detailed answer, would you also think about the above examples in more detailed ways or do you think typical volume * price is sufficient?
Most banking analysts are experts at BSing tams
The volume by geo * price approach works when you're sizing something that's more well-defined. The real rigor in your approach should come through in how you back up the assumptions on each lever though (e.g., what are the levers that get you to an estimated # of wedding bouquets, on what basis do you assert law students are willing to pay $x for in-person tutoring vs. electronic options).
Facere et unde dolor facere. Eum cum incidunt aut ducimus. Et sed laudantium odit et autem vero dolorum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...