If you’re running a local business, you’ve likely thought about how to grow and capture more customers in your area. But have you considered the size of your total addressable market (TAM)? Understanding your TAM isn’t just a theoretical exercise; it’s a practical tool that can guide your marketing, budgeting, and expansion strategies. Here’s how local business owners can assess their TAM and use it to unlock growth opportunities.
What is total addressable market?
Total addressable market, or TAM, represents the total revenue opportunity available for your business if you were to achieve 100% market share. For local businesses, this concept helps you quantify your potential customer base and determine the full scope of your market.
For example, if you run a martial arts studio in a city of 100,000 people, your TAM is the maximum number of potential students who might enroll and pay for classes multiplied by your average revenue per customer.
Why TAM matters for local businesses
Knowing your TAM allows you to:
- Set realistic goals: Understanding the ceiling for your market helps you set achievable revenue and growth targets.
- Identify gaps: By analyzing TAM, you might discover untapped customer segments or underserved demographics.
- Allocate resources effectively: TAM analysis helps you decide how much to invest in marketing, staffing, and infrastructure based on the potential return.
- Evaluate new opportunities: Whether you’re considering adding a new service or opening a second location, TAM gives you a framework to estimate the potential payoff.
Steps to examine your TAM
1. Define your target audience
Start by identifying your ideal customer. For local businesses, this often includes specific demographics like age, income, and interests. For example, a fitness studio might target adults aged 25–45 who are interested in health and wellness.
If you’re using MyStudio, our powerful software can help you break down the demographics of your current audience, from gender and age to interests and spending habits. This data provides a clearer picture of who you’re already serving and where there may be gaps or opportunities.
2. Estimate market size
Once you know your target audience, estimate how many people in your area fit this description. Here are a few data sources to help:
- U.S. Census data: Provides detailed demographic information for your area.
- Google Ads audience insights: Offers data on local search behavior.
- Social media analytics: Platforms like Facebook and Instagram can show you the size of relevant audiences in your geographic region.
3. Assess buying potential
Determine the average revenue per customer (ARPC). Multiply your ARPC by the number of potential customers in your market to calculate TAM. For example:
If your yoga studio charges $100/month and there are 5,000 people in your target demographic, your TAM would be $500,000 per month.
Finding data sources for TAM analysis
Local business owners can use a mix of public and private data sources to build an accurate picture of their TAM:
- Local chamber of commerce: Often provides demographic and economic data about your area.
- Third-party tools: Platforms like Nielsen, ESRI, and Ahrefs can provide detailed market analytics.
- Competitor analysis: Review the services, pricing, and customer reviews of similar businesses in your area to gauge market demand.
Making TAM actionable
Once you’ve calculated your TAM, the next step is to put that knowledge to work. Here’s how:
- Reassess your marketing strategy – Are you reaching the full scope of your market? For example, if your target demographic includes families, consider running promotions for family plans or summer camps.
- Spot new segments – You might notice overlooked opportunities, such as seniors interested in low-impact fitness classes or businesses looking for team-building activities.
- Measure your market penetration – Calculate what percentage of your TAM you’re currently capturing. If your market penetration is low, focus on strategies to boost awareness and engagement.
- Prioritize investments – If your TAM suggests room for growth, consider whether investing in new equipment, additional staff, or expanded marketing campaigns will yield a positive return.
Key considerations for local businesses
While TAM is a powerful tool, it’s important to recognize its limitations. TAM estimates are based on assumptions, so it’s critical to revisit and refine your calculations as market conditions change. Additionally, competition, economic trends, and customer preferences can all impact your ability to capture your TAM.
Unlocking your business’s full potential
By understanding and leveraging TAM, local businesses can make smarter decisions and uncover new opportunities for growth. Whether you’re looking to expand your customer base or optimize your offerings, a clear picture of your market potential is invaluable.
If you want to gain a better understanding of your data to address your TAM and identify new growth opportunities, schedule a demo with MyStudio today. Our tools can help you analyze your market, refine your strategies, and achieve your business goals.
