Let me break down the key differences between Surplus and TAM (Total Addressable Market): ### TAM (Total Addressable Market) - Represents the **total market demand** for a product/service - Measures the **theoretical maximum revenue** opportunity - Example: If there are 1M potential customers who could pay $100/year = $100M TAM - **Top-down metric** focused on market size - Question it answers: "How big could this get?" ### Surplus - Represents the **value created above costs** - Measures the **actual economic value** generated - Split between: - **Consumer surplus**: difference between what customers would pay vs what they actually pay - **Producer surplus**: difference between selling price and production cost - **Bottom-up metric** focused on value creation - Question it answers: "How much value are we creating and capturing?" ### Key Distinction ``` TAM = Market Size × Price Surplus = Created Value - Costs ``` Think of it like fishing: - TAM is the total amount of fish in the ocean - Surplus is how much value you create by catching and selling specific fish minus your fishing costs #economics #business-strategy #market-analysis #economics #business-strategy #market-analysis