This is the second in a four-part series explaining the concept of total addressable market and providing tips to help you begin identifying, gathering data on, and targeting your company’s total addressable market. Don’t forget to read part one’s overview of total addressable market.
Understanding your total addressable market ensures you’re targeting every potential customer. But determining your total addressable market (TAM) isn’t as easy as saying “every company in the so-and-so industry.” First, you need to define your ideal customer profile, or ICP.
Here’s an example: INITECH is selling human resources software to “every B2B company.” They haven’t defined their ICP because they think everyone wants their product. Well, a one-person consulting firm doesn’t need HR software. Similarly, a multi-billion-dollar company who built their own solution in-house isn’t interested either. But, maybe a fast-growing company with a new HR executive needs new software to help with recruiting and onboarding dozens of new hires every week.
For INITECH, they can begin to define their ICP as companies with HR executives who’ve been in the role less than one year and whose employee count is growing more than 10% per year.
ICP and TAM don’t just help you find more customers, they help you focus on the right customers. Marketing to prospects that have no need for your offerings just wastes time and money. And, you’re missing out on revenue if you aren’t targeting everyone who fits your ICP.
Define Your Ideal Customer Profile
At a minimum, defining your ICP should include a geographic region, a target title or level, and an industry. It’s better yet if you can drill down to additional firmographics, like company size. Other criteria might include quantifiable data, like increasing revenues or recent M&A activity, and qualitative data, like whether the company is innovative or has a strategic business initiative related to your offering.
New, data-intelligent technologies are also popping up to help you quantify your ICP even more granularly. Back to our INITECH example, maybe their ideal customer needs new HR software because they just acquired another company. Scouring the web for that type of data is unrealistically time consuming. But using software to constantly scan tens of thousands of sources and alert you when a company closes an acquisition could be a great signal of a hot lead. (You can learn more about using market signals and intelligence to help define your ICP in our recent white paper, “Measuring the Impact of Market Intelligence.”)
As a bonus, ICP also helps marketing and sales better qualify and route leads. According to sales and service performance company MHI Global, approximately 35% of sales opportunities are duds (Miller Heiman). If you could refocus only on those that fit your ICP, your conversion rates (and rep productivity) would surely improve.
It’s easy to disqualify a lead based on their location, but it becomes more risky as you add firmographics and buyer data because B2B data is quickly rendered inaccurate. Getting accurate and current data on accounts and contacts is becoming increasingly difficult. The prospect filling out your online form might not know their current revenue, or the prospect who your marketing team scanned at an event a few months ago may no longer work for that company. That’s where a data cleansing, enrichment, and/or validation service could be of use. These data services also help to identify existing targets who may actually fall outside of your ICP, but who you’re targeting based on incorrect or outdated data in your database.
In the third installment, you’ll learn more about using your ideal customer profile to determine your true total addressable market, and then how to turn that TAM into a targetable list for sales and marketing.