When starting or growing a business, one of the most important aspects to understand is the size and potential of your market. Entrepreneurs, investors, and business strategists often use terms like addressable market and obtainable market to measure growth opportunities and set realistic goals. While both terms may sound similar, they represent different levels of market reach and potential revenue. Having a clear distinction between these concepts helps companies plan strategies, allocate resources, and align expectations with achievable results. Exploring addressable vs obtainable market is crucial for anyone trying to turn ideas into sustainable business success.
What is an Addressable Market?
The addressable market, sometimes called the Total Addressable Market (TAM), refers to the maximum revenue opportunity available if a business captured 100% of demand for its product or service. It represents the broadest view of potential market size without considering competition, barriers to entry, or operational limitations.
Characteristics of the Addressable Market
- Represents the overall demand in an industry.
- Shows the theoretical maximum size of a business opportunity.
- Helps investors and stakeholders understand the scale of an idea.
- Often expressed in financial terms, such as total dollars or units.
For example, if a company makes fitness apps, its addressable market might include every smartphone user who is interested in health and fitness. While not every person will actually purchase the app, the addressable market sets the upper boundary of potential growth.
What is an Obtainable Market?
The obtainable market, also known as the Serviceable Obtainable Market (SOM), narrows down the opportunity to what a company can realistically capture. It considers competition, business resources, customer behavior, and marketing capabilities. Unlike the addressable market, which is more theoretical, the obtainable market is grounded in practical limitations.
Characteristics of the Obtainable Market
- Represents the realistic share a company can achieve.
- Takes into account existing competitors and customer loyalty.
- Considers operational capacity, such as production or delivery limits.
- Provides a practical estimate for sales forecasting and strategy.
Using the same fitness app example, the obtainable market may only include people in specific regions who actively spend money on health apps and can be reached through marketing efforts. This number is significantly smaller than the total addressable market but far more relevant to business planning.
Addressable vs Obtainable Market Key Differences
Although both concepts are used in market analysis, they serve different purposes. Understanding their differences ensures businesses set achievable expectations.
- ScopeThe addressable market is broad and theoretical, while the obtainable market is narrow and practical.
- PurposeAddressable market helps show overall potential, whereas obtainable market guides realistic strategies.
- AudienceAddressable market often appeals to investors, while obtainable market matters more for operational teams.
- Data sourcesAddressable market uses industry-wide reports, while obtainable market requires customer data and competitor analysis.
Why Both Measures Are Important
While some may assume focusing only on obtainable market is enough, both measures play an essential role in planning and communication. Here’s why
For Entrepreneurs
Entrepreneurs use the addressable market to demonstrate vision and potential. At the same time, they rely on the obtainable market to set short-term goals and craft realistic strategies.
For Investors
Investors want to know the size of the opportunity (addressable market) but also whether the company has a feasible plan to capture part of it (obtainable market). Having both figures creates confidence and transparency.
For Strategic Planning
Companies use the addressable market as a long-term vision but focus on the obtainable market for yearly targets, budgets, and sales strategies. Balancing the two avoids over-promising and under-delivering.
Steps to Calculate Addressable Market
Businesses usually calculate addressable market using industry reports, market research, and broad economic data. Common methods include
- Top-down approachStart with overall industry size, then narrow it down to relevant segments.
- Bottom-up approachUse pricing and potential customer numbers to estimate total revenue.
- Value theory approachEstimate based on the value customers place on the product or service.
Steps to Calculate Obtainable Market
Calculating obtainable market is more complex, as it requires detailed research and internal assessment. Some steps include
- Identify target customer segments through surveys and behavior analysis.
- Study competitor market share and their strengths.
- Assess business capacity, including production and distribution limits.
- Estimate achievable penetration rates based on marketing and sales efforts.
Examples of Addressable vs Obtainable Market
To better understand the difference, let’s look at a few examples from different industries
Electric Vehicles
The addressable market would be the global automobile industry, worth trillions of dollars. The obtainable market for a new EV company may be limited to a specific country or niche customer base willing to adopt electric cars in the short term.
Food Delivery Apps
The addressable market could include all urban residents who order meals online. The obtainable market would only be the specific city or region where the app operates and has delivery partners.
Healthcare Devices
For a company selling blood pressure monitors, the addressable market might be all people worldwide with hypertension. The obtainable market could be narrowed down to customers in a region where the company has distribution and regulatory approval.
Challenges in Defining the Markets
One of the difficulties in market research is defining boundaries accurately. Overestimating obtainable market can lead to unrealistic projections, while underestimating it can limit growth opportunities. Common challenges include
- Lack of reliable data on customer behavior.
- Rapid changes in technology and industry trends.
- Overlooking smaller but profitable market niches.
- Difficulty in predicting competitor actions.
How Businesses Use Market Data
Once businesses define both addressable and obtainable markets, they use this data to make decisions in areas such as
- Product developmentDeciding which features meet target market needs.
- Pricing strategiesSetting prices that align with customer expectations and competition.
- Marketing plansAllocating resources to campaigns likely to generate real impact.
- Investment pitchesShowing potential growth while demonstrating realistic goals.
Addressable vs obtainable market is not just a theoretical discussion it is a framework that influences business decisions at every level. The addressable market provides a vision of what is possible if there were no limits, while the obtainable market defines what is realistically achievable given current resources and competition. Companies that understand both concepts can balance ambition with strategy, inspiring investors while setting achievable goals for their teams. In today’s competitive environment, clarity about market size and reach is not optional it is a fundamental requirement for sustainable growth and long-term success.