Secure your pie slice! It's topical!

As you enter the fourth quarter of the year, you may be starting to think about your marketing plans for 2023. Terms like Total Addressable Market (TAM) and Target Market may surface in your planning, and you could be tempted to use them interchangeably.

Whilst your TAM and your Target Market are related they are different and treating them as synonyms may be a mistake. Think of a pie and various slices!

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 scissors, your TAM would be anyone who is left-handed. Let’s say this is the size of the pie!

Your Target Market however are the people or companies you plan to focus on in the short to medium term; in our analogy a slice of the pie! Using the left-handed scissor example, you may decide to launch your scissor product to hairdressers, so you decide to target hairstylists or barbers who happen to be left-handed – a sub-segment within your TAM. Other pie slices may be haberdashers, caterers, butchers, households etc. ??

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 and less relevant.

How Avail Confused its TAM with their Target Market

In 2012, Ryan Coon started Avail, a software application designed to help landlords manage and communicate with their tenants more effectively.?

Avail defined its TAM as landlords in the United States and Ryan started marketing to all of them. Large commercial landlords have different requirements than small real estate investors, but Ryan was treating them all the same. By 2016, the company had grown to $1 million in revenue, but Avail was experiencing churn, causing their growth to plateau.?

Determined to get the company back on a growth track, Ryan transformed his strategy. He niched down to his primary target market. A sub-segment of Avail’s TAM they defined as “DIY landlords managing less than ten units”.?

Choosing a segment of their TAM helped Ryan turn the company around. Narrowing their focus allowed the product team to simplify their features for amateur landlords. With a purpose-built product for smaller real estate investors, retention improved. The tighter definition of their market also led to better messaging that resonated with their target leading to improved response rates.

Between 2016 and 2020, Avail’s revenue grew from $1 million to $7 million. That’s when their expansion caught the attention of Realtor.com, who acquired Avail for around five times revenue.?

Why Your TAM is Still Important

You may be wondering why your TAM still matters if the secret to better marketing is narrowing your target to a segment within it. Well, your TAM remains important as you talk to investors or potential acquirers. Acquirers and investors place a premium on growth and potential, so they are going to want to understand the total size of the market or pie 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 coming year.

NB: Ensure you secure your slice before looking at other parts of the pie and remember that a pie that is rising or growing is attractive to investors!?