A Deep Dive into TAM Calculation Strategies
How DDOG, CRWD, and NOW calculate TAM
Ever wonder how tech giants like ServiceNow, Datadog, and CrowdStrike come up with those massive TAM numbers to make investors drool? Let's pull back the curtain and dive into the nitty-gritty of how these companies size up their markets.
Spoiler alert: It's not just about pulling a number out of thin air.
The Importance of Bottom-Up Approaches
While top-down approaches using analyst reports like Gartner and Forrester can provide a good starting point, it's the bottom-up calculations that really show us how companies view their market opportunity. These methods allow us to see if they're basing their estimates on:
Number of employees in target companies
Number of potential customer companies
Data consumption rates
Specific industry verticals
Product adoption rates
Understanding these bottom-up TAM calculations gives us a window into how these companies view their growth potential. It's not just about the final number, but about the assumptions and value metrics they're using to get there.
Let's break down how each of our spotlight companies tackles this challenge (formulas included below).