Serviceable Obtainable Market (SOM)

Q: What is the difference between SOM, SAM, and TAM in market analysis?

SOM (Serviceable Obtainable Market) is the portion of the Serviceable Available Market (SAM) that a business can realistically capture, given current capacities. SAM represents the segment of the Total Addressable Market (TAM) that fits your product or service. TAM is the overall demand for your product. SOM is the most focused and practical, used for planning.

Q: How do you calculate the Serviceable Obtainable Market (SOM)?

Serviceable Obtainable Market (SOM) is calculated by first determining your Serviceable Available Market (SAM) and then estimating the percentage of that market you can realistically reach, given constraints like competition and resources. For example, if SAM is £50 million and you can access 10%, then SOM is £5 million.

Q: Why is focusing on SOM important for startups and investors?

Focusing on Serviceable Obtainable Market (SOM) helps startups set realistic sales and growth expectations, align resources, and build credible plans. Investors value SOM because it offers a more accurate forecast of short-term business potential, helping avoid over-optimistic projections that can lead to disappointment.

Q: What practical example illustrates SOM in action?

If a company has the resources and brand presence to capture 8% of a £20 million healthy snacks SAM, its SOM is £1.6 million. This realistic projection assists in setting achievable sales goals and informs business planning, as opposed to using more optimistic market measures that might not consider actual barriers.

Q: What are the main limitations of relying on SOM projections?

SOM projections may be limited by incomplete market data, fast-changing competition, and shifts in customer behaviour. Setting SOM too conservatively can restrict growth, while overestimating can cause missed targets. Regular reassessment, using updated information, helps maintain an accurate view of what is realistically attainable.

Finance Dictionary >Serviceable Obtainable Market (SOM)

The Serviceable Obtainable Market (SOM) is the realistic share of the market a business can actually reach, given its current resources, distribution, and competitive landscape. This concept is crucial for businesses seeking to convert ambitious forecasts into actionable sales and marketing strategies. By focusing on SOM, companies avoid overestimating potential and prioritise feasible opportunities, bringing clarity to resource allocation and growth objectives. A surprising fact is that, despite the allure of massive Total Addressable Market figures, investors often base decisions on a company's clearly defined SOM, as it best predicts short- to medium-term success.

What is Serviceable Obtainable Market (SOM)?

Serviceable Obtainable Market (SOM) refers to the segment of the Serviceable Available Market (SAM) that a company can realistically capture, considering competitive intensity and its operational capacity. It moves beyond just assessing the size of a potential market and focuses on what is achievable in the short term for a specific product or service.

Imagine a company launching a healthy snack bar in the UK, where the SAM, or total spend on healthy snacks fitting the company’s niche, is £100 million per year. Due to competition, existing brand loyalty, logistics, and marketing reach, the company determines it can realistically access only 5% of this market within its first few years. Here, the SOM is £5 million. This calculation incorporates all current constraints, making it a practical figure for revenue forecasting and strategic planning.

Historical Background and Origin of SOM

The SOM concept developed alongside modern marketing and financial planning methodologies in the late 20th century. As entrepreneurs and investors sought greater accuracy in market forecasts, broad concepts like the "total addressable market" often proved too optimistic. The idea of narrowing these estimates to what could be truly obtained, taking into account real-world limitations such as distribution and sales channels, gave rise to SOM as an essential part of market analysis. Today, SOM is fundamental in business plans, pitch decks, and investment decisions.

Calculating SOM: Step-by-Step Example

Calculating SOM involves understanding three layered market concepts: Total Addressable Market (TAM) is the total demand for a product, Serviceable Available Market (SAM) is the portion you can serve based on your offering and reach, and SOM is the slice you can actually win.

Step-by-Step Calculation Example:

Suppose you are launching a software service in the UK:

1. TAM is £500 million (the value of all possible purchasers of similar software in the country).
2. SAM is £50 million (the value of customers your product can realistically serve—e.g., only businesses within certain industries or sizes).
3. You project, based on your marketing budget, sales team, and competition, that you can reach and convert 10% of your SAM in three years.
4. SOM = 10% × £50 million = £5 million.

This figure represents your most realistic market opportunity, forming the core of your short-term planning and revenue targets. In practical terms, focusing on SOM ensures your business strategies are grounded in achievable reality.

How is SOM Used in Business Planning?

SOM is a cornerstone in business planning, investment presentations, and goal setting. It directly informs revenue forecasts, resource allocation, and go-to-market strategies by setting a credible upper limit for near-term attainable sales. Unlike TAM or SAM, SOM is used by organisations to align internal capabilities with market realities. For example, when seeking investment, a clear SOM helps demonstrate that founders understand market boundaries and are less likely to overpromise, establishing trust with stakeholders.

Pros and Cons of Serviceable Obtainable Market (SOM)

One significant advantage of focusing on SOM is its realism. Businesses can set achievable goals, track performance against practical benchmarks, and prioritise marketing or operational efforts with a clear sense of scope. Investors value SOM because it reflects not only aspiration but also a practical assessment of a company's capabilities and constraints. However, a potential downside is the risk of underestimating growth. If SOM is set too conservatively, businesses may not aggressively pursue expansion or innovative marketing, leading to missed opportunities. Furthermore, the process of accurately defining SOM can be complex, relying on high-quality market research and genuine assessments—any error or bias can skew results and affect strategic decisions. Thus, SOM is both an anchor for strategic planning and a potential ceiling if not revisited regularly.

Key Characteristics and Use Cases

SOM is defined by its basis in realistic planning—it is data-driven, considers barriers such as competition, distribution channels, market segmentation, and customer acquisition costs. Use cases include new product launches, business model pivots, and market entry analyses. Companies utilise SOM to build robust financial models, set investor expectations, and prioritise sales efforts on reachable customer segments. As markets evolve, regularly updating SOM helps ensure strategies remain aligned with real-world dynamics, rather than static projections.

Important Considerations When Assessing SOM

When defining SOM, it’s important to conduct ongoing competitive analysis, track changes in consumer behaviour, and adjust for internal changes in productivity or sales capabilities. A practical understanding of SOM is enhanced by studying market share changes, innovations in marketing, and barriers to entry in your sector. Regular review of market data and strategy sessions helps keep SOM figures both current and meaningful for decision-makers.

For new and growing businesses in particular, understanding SOM can help ensure limited resources are channelled toward markets with the highest achievable impact. If you are preparing for investment or scaling revenue, clearly defining SOM in your planning process can provide a foundation for sustainable success. For further guidance or access to business funding solutions aligned with your growth ambitions, you may find the business funding solutions page a valuable resource.