Building Your Total Addressable Market (TAM) with NAICS Data

A practical, no-download guide to accurately sizing markets the investor-approved way—straight from public NAICS sources.

1. Pick Your Addressable Unit

Your “unit” can be firms, locations, transactions, or end-users. Choose the level you can count with verifiable data. For most B2B scenarios, precise six-digit NAICS codes are the ideal anchor.

2. Find Verifiable Unit Counts

• County Business Patterns (CBP) – detailed firm counts segmented by NAICS, geography, and size
• Bureau of Labor Statistics (BLS) QCEW – quarterly establishment counts, employment, and wage data
• SEC 10‑K Filings – publicly disclosed competitor data to cross-validate unit assumptions

Example: NAICS 236220 (Commercial Contractors) has 48,127 firms according to CBP data; NAICS 238910 (Site Preparation Contractors) adds another 10,998.

3. Attach Pricing or ARPU

TAM = Units × Price × 12 months

If you sell by seat or user, use Average Revenue Per User (ARPU); if you sell per firm, use your average contract value. Always model at least two price points (e.g., standard and discounted) to assess sensitivity and market elasticity.

4. Crunch TAM → SAM → SOM

1. Total Addressable Market (TAM): Start broadly: Units × Price × 12 months
2. Serviceable Available Market (SAM): Refine by realistic criteria (geography, size, segment fit). Example: West Coast firms represent 42%; mid-market firms represent 78% of those.
3. Serviceable Obtainable Market (SOM): Apply your attainable market share over a defined timeline (e.g., realistically capturing 5% market share within three years).

Tip: Investors value conservative, clearly-explained assumptions—use actual industry benchmarks wherever possible.

5. Stress-Test Assumptions

Investors love realistic stress-testing. Show robustness by evaluating:

• Geographic variability: Compare nationwide versus targeted regional market sizing.
• Price sensitivity: Simulate pricing pressure scenarios (e.g., 20% lower pricing).
• Market share sensitivity: Model conservative (3%) versus optimistic (8%) market share scenarios.
• Competitive responses: Assume varying competitive intensity and how it affects market penetration.

6. Package the Story

1. Problem statement: Clearly define the pain point, e.g., "59,000 contractors lack efficient site management solutions."
2. TAM headline: Frame the market size compellingly: "That's a $2.5 billion annual market opportunity."
3. Why now: Emphasize market triggers—like regulatory shifts, technological advancements, or evolving customer expectations.
4. Your strategy and plan: Define your achievable market capture clearly, e.g., "Achieving a 5% market share translates into a $98 million revenue opportunity (SOM), with a clear path to $5M Annual Recurring Revenue (ARR) in 18 months."

Frequently Asked Questions