Serviceable Obtainable Market: How to Calculate Your SOM (2024)

As an entrepreneur, finding your place in a new or existing market is likely one of the first steps you’ll take to launch a new business or expand. You might have an exciting dream for a product or service, but if there’s no demand or opportunity, you’ll face an uphill battle turning your business idea into a success.

So, how can you determine the opportunities in your market? A metric called serviceable obtainable market (SOM) can provide valuable insight into market size and share. Learn which factors affect SOM and how to calculate it for your own business.

What is serviceable obtainable market?

Serviceable obtainable market (SOM) reflects the estimated portion of a market your business can realistically serve, based on its offerings, the overall market size, and the competitive landscape.

If you’re an ecommerce brand, you can gain a more realistic idea of your expected market share by using SOM to inform your market research and overall business strategy. SOM can help you evaluate the potential revenue of a particular product or service and identify opportunities for targeted sales tactics and marketing strategies.

TAM vs. SAM vs. SOM: What’s the difference?

SOM is a realistic look at the market for your business and the last layer of market size analysis. Here’s a breakdown of other key market size metrics and how they interrelate:

• Total addressable market (TAM). TAM represents the entire market demand and revenue potential for your company’s product or service category.

• Serviceable addressable market (SAM). SAM is a segment of TAM that takes into account your company’s geographical reach and distribution capabilities.

• Serviceable obtainable market (SOM). SOM is a segment of SAM that captures the realistic market share for your specific offerings, accounting for your historical business performance, brand awareness, and competition.

TAM, SAM, and SOM are three metrics that represent different market segmentation levels. TAM is the broadest consideration of what a company could earn from 100% of a particular market. It’s meant to be an unachievable top-level view, unbound by market realities, as it represents what a global monopoly on an industry would look like.

By drilling down to SAM and SOM, you gain a more specific picture of the market segment you can realistically capture.

Factors that affect SOM

Four primary factors affect SOM and separate it from TAM and SAM:

Market size and reach

SOM filters the TAM by your company’s target market and potential market reach. Market reach is the number of potential customers you can effectively reach with your available resources and capabilities. Conduct market research to understand the total size of your particular market, what percentage of that market is available, and how effectively you can reach that percentage of customers.

For example, a Texas ecommerce merchant of sustainable cleaning products could check market reports to find that the global market for household cleaning products was around $38.4 billion in 2023. From there, they could determine what percentage of that market is available in their region—and how many target consumers are in that percentage.

Product

Your product and its quality, price, and uniqueness significantly affect SOM. What is the total market demand for the particular product you plan to sell? How many customers are able and willing to purchase your product at the set price? What is your product viability—how relevant and interesting is your product in meeting your ideal buyer persona’s needs? A high-quality product in a new market can appeal to a larger audience and lead to a larger SOM.

Competition

The number and strength of competitors in your given market heavily influence SOM. Are you offering a superior product to other companies? How does your pricing strategy compare to your competitors? What is your competitive advantage in the marketplace? How many companies are in your product category? Are your sales strategies targeted to your market? A highly competitive market can reduce your SOM, but a compelling unique value proposition (UVP) may be enough to set your product apart.

Historical performance and external research

SOM accounts for your company’s previous performance. Use essential business metrics like net income, current assets, and operating cash flow to understand your performance and gauge revenue.

Quantitative data, like sales analytics, and qualitative data, like surveys with your customer base, can help determine your company’s levels of brand equity—the perceived value of your company.

For startups and newer businesses without a performance history, conduct external research about market trends in your geographic location to estimate average annual revenue.

How to calculate SOM

To calculate SOM, multiply your previous year’s market share percentage by the current year’s SAM. Here’s the formula:

Last year’s market share % x This year’s SAM = SOM

To calculate your market share from the previous year, divide your last year’s revenue from last year’s SAM.

Calculate SAM by multiplying your total potential customers within your market with the average annual revenue per customer, also known as annual contract value (ACV).

Say a cosmetics ecommerce business identifies its SAM at $100 million through market reach and understanding of its geographic location. It earned $3 million in revenue the previous year, so it can calculate its market share like this:

$3 million in revenue last year / $100 million SAM last year = 0.03% market share last year

The company learns this year’s SAM has increased to $140 million based on market expansion and a higher number of retail locations in new areas. The cosmetic company could then calculate its current SOM:

0.03% market share x $140 million SAM = $4.2 million SOM