ACV and TAM

Depending on the segment you’re going after, different channels are relevant.

A low ACV with a large TAM and many targets likely needs to focus on SEO, Paid Search and Paid Social. Conversely, having a high ACV with a limited TAM and few targets implies the need for ABM, Sales Enablement and Customer Marketing.

As a general rule, the higher the Price and Annual Contract Value for a product, the lower the Total Addressable Market. The lower the ACV, the higher the TAM.

These two dimensions largely govern what avenues a particular business should take because as ACV shrinks, a company has a much lower amount of Customer Acquisition Cost (CAC) to work with to have a healthy Payback Period.

To put it another way: When deal sizes are smaller, you need to invest fewer dollars to acquire customers in order to break even in a reasonable amount of time.

When there is a mismatch between the approach a company should take and the one it actually takes, havoc ensues:

-The chosen channels are ineffective and conversion rates are significantly lower

-CAC gets inflated as companies spend too much to acquire customers

-Too many of the wrong fit customers come in the pipeline and end up churning too quickly

Knowing which channels, programs and campaigns apply to which segments is critical to setting the right Go-To-Market strategy and allocating the right budget to those activities.