Total Available Market (TAM) - Stanford "Strategic Marketing of High Tech and Clean Tech"

Total Available Market (TAM) – Stanford "Strategic Marketing of High Tech and Clean Tech"

what about the market size and the thing is especially if it's an emerging market and there's no market what is the size of a non existing market alright let's talk about it again most people use a top-down way to approach to size the market the healthcare market is a trillion 1.7 trillion dollars if we conserve relatively when 1% of that were 17 billion dollar company first year second year right I'm telling you investors here there's about 10 times every day okay if we win one percent of that market we're a seventeen billion dollar company now why do entrepreneurs do this because a they believe that investors want to see a multi billion dollar market and it's true right but also be they see large company executives doing this you know nine hundred fifty seven million phones 1% of that we're gonna do 10 million phones in 2008 Steve Jobs right this is before they came up with you know iPhone right why not if it's good enough for Steve Jobs it's good enough for me right these are multi-billion dollar companies already now and this this is not bad to sell an idea by the way but this is useless to develop a product okay so it may help you summarize blah blah blah but if you want to develop a product strategy it is worse than useless how do you do it you use something called total available market or tan okay what is a time a time actually there are three variations and they're all fine you can use any combination of these one is what is the total number of potential customers in your target market now remember I said every segment has to be measurable well that's the number okay what is the potential number of users another way to do the TAM is what is the total potentially number of units sold into the market assuming that you know users are going to buy more than one unit then what is that potential Tam and the one that's used the most is what is the total dollar revenue number from the above potential market now let's do that number now but this is a big reminder big caveat Tam is not your market is the total pie that everyone all your competitors you and all your competitors are going after it's not your market okay anybody who says that's my market is flunked here by okay does that make sense okay it's a total pie so Tam number one the number of potential users let's go after the Nile independent truck drivers three hundred thousand independent truck drivers in the US this is an actual number okay or close to actual three hundred thousand independent truck drivers in America now here's another concept it's average revenue per user ARPU so average revenue per user is the product plus service revenue that you can get per user now you need to break down to do this the potential revenue into if you are gonna make money from advertising or from unit sales from surveys from fine and financial you know whatever points or whatever right so you know you have to break it up you add it all up and that's the ARPU okay so in this example if we're gonna do the tailpipe exhaust to power product say the retail price is 1500 to 2500 depending on the size of the truck so the average is 2,000 the services I don't know GPS location or the iPod app or whatever is going to be a hundred to 500 insurance so basically the ARPU is going to be 2300 does that make sense average revenue per user okay let's put it all together so the product is the tailpipe exhaust to power that's going to go into trucks target market independent truck drivers in America what's the temp are poo is 2300 there are 300,000 potential users multiply those numbers 300,000 times 2300 is if I did my numbers right 690 million dollar potential market notice that market does not exist okay it may be an emerging market it may be a non-existent market but this is the way to size the market total available market


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