If your entire market of customers bought your product, how much money could you make?
Execs call this your TAM, or "total addressable market."
Last year at Spark and Hustle, we met up with Gloria, an entrepreneur developing exercise DVDs targeted at Haitian-American women.
How many Haitian-American women might buy exercise DVDs realistically? First ask, how many exercise regularly, and of those, what percentage are looking for a Haitian DVD (versus, say, Jillian Michaels)?
Here's a back-of-the-napkin approach to thinking about market opportunity. Note, you can research each line item, and you should. But you can make a solid estimate based on reasonable assumptions.
- How many Haitian-Americans live in the U.S.? That's easy to find from Census data: about 1,000,000.
- What percentage are women ages 21-65? Let's make a reasonable guess of 30%: i.e. 300,000.
- What percentage of women exercise regularly? 50%, according to WebMD.
Based on the above, Gloria's total market opportunity is about 150,000 possible customers.
How many would likely buy her DVDs? Let's be conservative and assume 5%. If that. Remember Jillian Michaels. 5% of 150,000 is a TAM of 7,500 women.
At $14.99 retail, Gloria has a total market opportunity of about $112,425. The profit margin on that that $112,425 might mean about $50,000 in her bank account—assuming she sold all 7,500 DVDs.
Bottom line: To run a thriving business, Gloria would need to expand her market.