How to Calculate TAM for Marketplaces
Total Addressable Market (TAM) is one of the first numbers you as a founder need to run before jumping headfirst into your idea. This is one metric that will be used to determine the size of your opportunity and what investors will also want to see before anything else. Given that, most founders inflate TAM by using broad industry numbers, or they shrink it by confusing TAM with the revenue their marketplace might earn. Both approaches miss the point.
For marketplaces, TAM reflects total economic activity, not your cut of it. The right question to ask for calculating TAM is:
If every transaction in your category happened through your platform, what would the total GMV be?
Get this right, and your forecasts, fundraising narrative, and category strategy all become clearer. Get it wrong, and everything else in your model wobbles.
Below is a simple rundown of how to calculate TAM correctly for two-sided platforms, using a bike rental marketplace as the example.
Start With the Right Foundation: TAM Is Based on GMV
Marketplaces facilitate transactions. They do not own the product or service. Because of this, your TAM should always be expressed as total GMV for your category, not revenue.
After you understand your GMV TAM, you can calculate revenue TAM by applying your take rate. But TAM starts with GMV.
Three Ways to Calculate TAM for Marketplaces
1. Top-Down TAM (Useful but Broad)
This method starts with industry research and narrows the category.
Example:
Global bike rentals + micro-mobility market value: $6B
Short-term leisure rentals might be 30 percent of that
TAM ≈ $1.8B in annual GMV
It’s a helpful framing but too high-level to trust on its own.
2. Bottom-Up TAM (The Most Accurate Method)
This is the method investors trust most because it is built from real-world assumptions.
Formula:
TAM = (# of rentable bikes or providers) × (avg yearly GMV per bike/provider)
Then:
Revenue TAM = GMV TAM × take rate
Example:
A bike rental marketplace estimates:
7,500 viable bike owners or rental shops × $5,000 GMV per bike per year
GMV TAM = $37.5M
With a 20 percent take rate:
Revenue TAM ≈ $7.5M
This method forces you to understand your supply base and the realistic earning potential per provider.
3. Geographic TAM (For Local Marketplaces)
Some marketplaces are hyper-local. A single city can behave like its own standalone marketplace.
Each city has different seasonality, customer density, tourist activity, and pricing.
Example (hypothetical bike rental marketplace):
San Francisco: $4M GMV
Austin: $2.5M GMV
Denver: $1.8M GMV
Miami Beach: $3M GMV
Your total TAM is the sum of the markets you plan to operate in, not the global bike industry.
This approach is especially important for:
Ride and mobility rentals
Home and outdoor gear rentals
Urban tourism experiences
Any marketplace that has distinct local market usage
Local TAM is the most honest way to size your opportunity but it misses the larger potential as you look to scale into more markets.
The Collective Wrap
TAM for marketplaces is not guesswork. It’s a structured view of the economic activity your platform can realistically organize. When you calculate it correctly, TAM becomes a strategic tool, not a vanity slide.
If you want help defining TAM for your category, mapping city-level opportunities, or building a more credible investor narrative, reach out. Marketplace modeling is one of my favorite topics to dig into.
