Gauging your total addressable market (TAM) might seem like a mind-numbing financial exercise reserved for the strategy team. However, getting an accurate read on your market opportunity is crucial for any ambitious, data-driven sales organization.
In this post, we’ll walk through a bottoms-up approach to market sizing using data from BenefitFlow. We'll cover:
Whether you’re seeking to expand territories, allocate sales resources effectively, or simply size up the playing field, understanding your addressable market is the essential first step. Let’s dive in!
Your total addressable market represents the total revenue opportunity available for your product or solution. In concrete terms, TAM encompasses:
Clarifying your TAM equips sales leaders with insights to:
A quick word on Top-Down vs. Bottoms-Up TAM Analysis, and why a Bottoms-Up approach is almost always the way to go.
Top-down TAM analysis: starts with a broad market estimate and narrows down to the segment relevant to your product or service. For example, we’ve seen some begin their TAM calculations by pointing at the fact that “U.S. healthcare spend represents 17% of GDP” and celebrating the fact that even a very small % share of that market represents billions of $$$!
While this method can offer a quick “back of the envelope”, it often relies on highly generalized assumptions that fall apart when you peel back the onion. Oftentimes, this lack of granularity will lead to overestimations of your true market potential.
Bottoms-up TAM analysis: builds the market size from detailed, specific data points, such as the number of potential customers, average sale price, and assumed conversion rates. This method provides a more accurate and defensible view of the market, as it is grounded in real-world data and direct observations. For sales leaders, bottoms-up is the way to go… as it not only translates to more accurate estimates, but it will also provide the granularity you’ll need when putting your sales strategy into action (as we’ll cover later on).
Given our scope is confined to the U.S. Employee Benefits market… this is where we’ll focus. For many of our customers the EB market (i.e. Employers) represents their entire scope, while others may address the group market as well as the private/retail market. Below, we’ve done our best to frame the entire U.S. health/benefits market and illustrate some of the data sources that cover each segment (and yes, we shamelessly plugged BenefitFlow here as we believe it’s the best data source that captures the employer-sponsored market 🙂).
Now that we’ve found a data source for our bottoms-up analysis, let's walk through a sample TAM analysis for a fictional BenAdmin platform: “BenefitBoom” (still working on the name 🙂). BenefitBoom has emerged as a new player among middle-market employers and its sales team is looking to capitalize on the recent traction and grow aggressively.
It can also be valuable to run some cohort analysis to see how the market opportunity maps to various sub-segments. For example… the 1,000-5,000 cohort has far fewer companies than the 100-500 cohort, however, there are 14.5mm employees that work at those larger orgs! You can similarly run these cuts by geography, renewal date, industry, and more. The insights won’t always be groundbreaking, but sometimes all it takes is one new finding to change the direction of your sales strategy.
Note: When thinking about TAM… remember to exclude portions of the market that are not ‘serviceable’. For example, if we do not have support resources in California… we might not have access to that market yet.
Now that we’ve filtered down to our TAM, it’s time to take our market data and layer in revenue assumptions.
💡 By leveraging BenefitFlow's filters and employer data exports, you can conduct a similar TAM analysis tailored to your ICP.
TAM modeling is about mapping your revenue potential to strategic decisions that drive growth. With your market sizing complete, key next steps include: