Serviceable Obtainable Market (SOM)
The Serviceable Obtainable Market, or SOM, represents the portion of the Addressable Market that a business can realistically capture. It’s calculated using a combination of bottom-up analysis, which focuses on potential customers and market demand, and top-down approach, which considers the entire market and market segment. The key components in this calculation include the business model, target audience, and annual revenue.
How to Calculate SOM (Serviceable Obtainable Market)
Calculating the Serviceable Obtainable Market (SOM) is crucial for businesses to understand the realistic portion of the market they can capture. Here’s a step-by-step guide:
- Identify the Total Addressable Market (TAM): This represents the entire market potential or demand for a product or service. Considering the entire market, it’s the total revenue opportunity available for a product or service.
- Determine the Serviceable Available Market (SAM): This is the segment of the TAM targeted by your products and services that is within your geographical reach. It’s often larger than SOM and can be determined through market research, industry reports, and market analysis.
- Estimate Your Market Share: Based on your business model, marketing strategies, and current business performance, estimate the percentage of the SAM you believe you can realistically capture.
- Calculate SOM: Multiply your estimated market share (in percentage) by the SAM.
Formula: SOM = SAM x Estimated Market Sha
5. Refine Regularly: Market conditions, competition, and business strategies evolve. It’s essential to revisit and refine your SOM calculations periodically to stay relevant and accurate.
Example of SOM
Imagine a food restaurant market in a bustling city. While the entire target market might consist of all food lovers in the city, the Service Obtainable for a specific vegan restaurant would only be those interested in vegan cuisine. The total annual revenue for all restaurants is $10 million, but vegan restaurants only make up 10%. The SOM for a new vegan restaurant would be $1 million, assuming it captures the entire vegan niche.
Importance of SOM
Understanding your SOM is crucial for several reasons:
- Business Strategy: It helps businesses prioritize their marketing strategies and allocate limited resources effectively.
- Potential for Growth: Recognizing the growth potential in a specific market segment can guide expansion plans.
- Attracting Potential Investors: Prospective investors often look at the SOM to gauge the upside potential of a business idea.
How to Maximize SOM
- Market Analysis: Conduct thorough market reports and analyses to understand market conditions and the potential size of your target segments.
- Marketing Plan: Develop robust marketing strategies tailored to your target market to increase market awareness.
- Sales Teams: Equip sales teams with the tools and knowledge to tap into niche markets and expand the customer segment.
- Business Opportunities: Continuously innovate and adapt the current business model to meet market demand and seize new business opportunities.
Conclusion:
In conclusion, understanding and maximizing your Serviceable Obtainable Market is essential for any business. It clarifies the market volume and revenue potential and offers insights into market opportunities and challenges. Whether you’re looking to expand into the international market or focus on specific niche markets, a clear grasp of your SOM can guide your business decisions and strategies for the medium term and beyond.
Frequently Asked Questions
What is the difference between serviceable and obtainable market?
– While both terms refer to market potential, the serviceable market is the broader target audience you aim to serve, and the obtainable market is the portion you can realistically capture given your business strategy and resources.
Why does SOM matter to investors?
– SOM provides potential investors a clear picture of a business’s revenue opportunity and financial projections, helping them assess the risk and reward.
Why is identifying your SOM important?
– Identifying your SOM allows businesses to set realistic revenue goals, understand their market share potential, and tailor their marketing and business strategies to the most lucrative market segments.
