Why Your Addressable Market Shapes Business Value and What to Do About It
Published by
Brian Breneman
on
Picture two businesses: both profitable, both operationally sound. One dominates a narrow regional niche. The other serves a broader market with room to grow. Which one commands a higher price?
For most buyers, it’s the second business because value hinges not just on where you are today, but where you can go tomorrow. And that’s largely determined by one key factor: your addressable market.
The Three Pillars of Business Value
At Breneman Advisors, we regularly evaluate businesses across three fundamental dimensions:
- Sustainable profitability
- Reliable operations and people
- Opportunities for future growth
The third is often the most variable and the most misunderstood. Future growth potential is where your addressable market takes center stage.
Your Market Is the Audience — Not Just the Stage
Think of your business as a skilled performer. You’ve rehearsed well (strong operations), delivered consistently (solid profits), and built a great team (capable people). But how many seats are in the theater?
If you’ve already sold to most of the audience, in other words, if your local or niche market is saturated, then future growth will be limited. Buyers know this, and they price accordingly. They’re not just buying what you’ve built; they’re buying what comes next.
A Framework for Market Size
“Addressable market” can sound like a consultant’s buzzword, but in practice, buyers use it to evaluate growth ceiling. Here’s a working scale:
- Small: Less than $10 million in untapped annual revenue
- Mid-sized: $10–$100 million in potential market share
- Large: Over $100 million or multi-regional/national opportunity
These aren’t hard limits, but they do influence how buyers model future earnings and what kind of return they expect.
Two HVAC Companies, Two Outcomes
Let’s take two real-world analogs in the HVAC space:
- Company A serves a rural region with 70% market share. It’s well-run and profitable, but it’s likely maxed out unless it adds new services or enters new geographies.
- Company B operates in a growing metropolitan area and holds 10% market share. It’s equally profitable, but with far more upside.
From a buyer’s standpoint, Company B is more attractive because there’s room to grow. Valuations reflect that.
Expanding the Market — Expanding the Value
If your addressable market feels like a constraint today, here are three strategic ways to shift that narrative:
- Add Services – HVAC firms, for example, can add plumbing, electrical, or home automation. Cross-selling to existing customers is often the fastest path to growth.
- Grow Share – If you’re in a mid-sized market, more aggressive marketing or sales efforts may move the needle.
- Enter New Regions – Even modest geographic expansion can open up significantly more addressable revenue.
Each of these strategies doesn’t just improve operations — it changes the growth story buyers will hear.
Tell a Growth Story, Not Just a History
When it’s time to sell, your business narrative should be forward-looking. Don’t just present what you’ve done — explain what a buyer can do next:
- How large is your total addressable market?
- What’s your current share?
- Where’s the room to grow?
Buyers will pay more for a clear, plausible growth path. If your existing market seems small, frame it as a launchpad, not a limit.
Final Thought
Your addressable market isn’t a footnote; it’s often the headline. In valuation terms, it can be the difference between good and great. Treat it as the spotlight it is. When buyers see future potential clearly illuminated, they’re more likely to pay a premium.
Frequently Asked Questions
Q1: What is an addressable market?
An addressable market is the total revenue opportunity available if your business reached all potential customers within your target market.
Q2: Why does addressable market size impact business valuation?
Buyers value future growth. A larger, untapped market signals greater potential returns, making a business more attractive.
Q3: How do buyers assess growth potential in an addressable market?
They look at market size, current share, and realistic expansion opportunities, whether through services, marketing, or geography.
Q4: What strategies can expand a business’s addressable market?
Common strategies include adding new services, gaining more market share, and entering new regions.
Q5: How should business owners present their addressable market to buyers?
Frame it as a growth story: define the market size, your current position, and how a buyer can capture more.