As we near the fourth quarter of the year, you may be starting to think about your marketing plans for 2024. Two key concepts play a significant role in strategic planning: Total Addressable Marketing (TAM) and Target Marketing. These specific terms may surface in your planning, and you could be tempted to use them interchangeably.
However, your TAM and your Target Market are related but slightly different. Let’s explore the differences between these two concepts. Essentially, your business can develop an effective marketing strategy and increase your chances of success in engaging with the right consumers.
Difference Between Total Addressable Market and Target Market
First, let’s understand these two distinct concepts and how they play a crucial role in your business strategy and market analysis. 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 spatulas, your TAM would be anyone who is left-handed.
Your target market is the person or company you plan to focus on in the short and long term. Using the left-handed spatula example, you may launch your utensil to restaurants. So, you then decide to target professional chefs who happen to be left-handed – a subsegment within your TAM.
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 not grab attention.
A Story About How Avail Confused its TAM with its 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. So, Coon started planning a marketing strategy to engage with landlords. Large commercial landlords have different requirements than small real estate investors. However, the wrong move made was that Coon was treating them all the same. By 2016, the company had grown to $1 million in revenue, but Avail was experiencing churn, causing its growth to plateau.
Types of Market Segmentation
Coon decided to transform his strategy as he was determined to get the company back on a growth track. He niched down to his primary target market. A sub-segment of Avail’s TAM was defined as “DIY landlords managing less than ten units.”
Choosing a specific segment of its TAM helped Coon turn the company around. Narrowing its focus allowed the product to simplify its 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, which acquired Avail for around five times its revenue.
The Importance of Total Addressable Market
You may wonder why your TAM still matters if the secret to better marketing is narrowing your target to a specific segment. However, your TAM remains important as you talk to investors or potential acquirers. Acquirers and investors place a premium on growth. As a result, they will want to understand the total size of the market that is available for your product. Regardless, you may intend to target them in the short to long term.
Your TAM is important to the long-term value of your company. However, narrowing your target market in the short term may be the key to meeting your goals for the coming year.
Maximize Your Business Valuation with Maximum Possibilities
Understanding the techniques to increase your business’s valuation is just one of the ways Maximum Possibilities can help your company.
You can significantly enhance your business’s overall worth by focusing on key areas such as revenue growth, profitability, market position, and operational efficiency. Implementing effective marketing and sales strategies are essential steps toward boosting your business’s valuation.
With the right approach, expertise, and determination, you can position your business for success.
Complete the Value Builder Scorecard today. Then, let’s discuss your plans and goals.
Let’s get started on creating an effective strategy to increase your business’s valuation. Your success is our success.