How to assign an arbitrary multiplier for network effects as a venture backed company scales

Say you launch a product in City A and it has a total addressable market of $20m. Then assume cities B, C, and D are next, and they all have the same population as City A. I know that it wouldn't be $80m - there would be some sort of network effect, and maybe the TAM would be $90m.

How do you come up with the multiplier to account for this network effect? Is it just a total swag? If so, any clue on typical value ranges?

Or, am I wrong, and this doesn't apply to TAM calculations, only revenue projections?

Thanks so much. A bit of an urgent ask if anyone sees this and happens to know the answer.

 
Best Response

I would use a range (i.e. value sensitivity) of multipliers for product adoption across the various markets in the revenue projections. I have done something like this for modeling an early stage subscriber-based technology that was launching across various markets over a period of time. In my experience, TAM typically isn't something you flex unless it is something like a health plan where you are looking at demographic growth in medicare populations.

For a more theoretical approach on product adoption, I recommend referencing the Bass Diffusion Model which is a differential equation that can be used to map out adoption over a period of time. This is probably way too theoretical and time consuming for what you are looking for.

Maybe some of our MBB friends have better answers?

 

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