An estimate for the portion of revenue within a specific product segment that a company is able to capture
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The Serviceable Obtainable Market (SOM) is an estimate of the portion of revenue within a specific product segment that a company is able to capture. Another way of looking at it is as an estimate of the market share for a particular product that a company can garner. It is part of market segmentation analysis, which is broadly used in the marketing and operational decisions of a company.
SOM can be compared to the total obtainable market, which is the entire market demand for a specific product or service. It can also be compared to the serviceable available market, which is the portion of the market within geographical reach.
The best way to understand SOM is to look at it as a portion of the serviceable attainable market and the total available market. It is the part of the market a company projects they can realistically capture.
The serviceable obtainable market (SOM) is an estimate for the portion of revenue within a specific product segment that a company is able to capture.
Factors that contribute to SOM include market size/reach, product, and competition.
When estimating SOM, it is useful to consider historical performance, competition, and external research.
Serviceable Obtainable Market – Factors
1. Market size and reach
The market size for the product is the first factor you should look at in determining SOM. The market size for a particular product needs to be determined based on the geographical area it is offered in. The projected reach needs to be considered in the context of the company’s capabilities.
For example, while a company selling online could potentially sell to anyone in the world with the internet, their reach is going to be considerably smaller due to constraints such as the target market and budget.
Considering the product within the marketplace is also essential in arriving at an accurate SOM prediction. The product should be considered relative to the demand for it within the geographical market the company is operating in. Factors such as growth and consumer sentiment should also be considered.
You must accurately be able to assess direct and indirect competitors and their strength and presence within the marketplace. Determining the amount of market share competitors have will help a company estimate how much of the market they are able to capture.
4. Historical performance and external research
This involves analyzing the past performance of the firm and the projections for revenue in the coming years. Historical figures can help determine a realistic estimate for market size and share. For start-ups and less mature companies, collecting research on their industry and geographic area is essential.
All of these factors should be used in conjunction when estimating SOM. However, in some situations, it may be appropriate to focus on one or two. For example, a company that is initially entering a market will have zero to limited historical information.
Serviceable Obtainable Market – Importance
The idea of SOM is important for companies in making financial projections and operational decisions. Using this idea can help companies forecast sales based on a percentage of the market share, using the above factors. It can also help businesses evaluate different opportunities or gaps in the market.
SOM breaks down exactly where a company fits among competitors and assists management in selecting a strategy that better positions the firm within the marketplace. Evaluating the SOM also helps investors to more accurately evaluate the potential upside and risk associated with an opportunity. Seeing exactly how a business’ strategy fits within the market is an important step in making investment decisions.
Serviceable Obtainable Market – Example
A soccer ball store in Vancouver, Canada is trying to project its revenues and, therefore, wants to calculate their SOM. They know that the global market for soccer balls is $1 billion annually and $500,000 within Vancouver.
Based on previous performance and competitor information, they believe they can attain 50% of the market share. Therefore, their SOM would be $250,000 ($500,0000 * 50% market share).
Serviceable Obtainable Market – Limitations of Use
Many companies overestimate their potential earnings when looking at metrics like SOM. For example, a new video game company may estimate capturing 0.1% of the global video game market. While this may seem like a realistic estimate, this still equates to $160m in revenue.
The first flaw in this projection would be using a calculation based on a segmented and complex industry. There are thousands of companies operating in the video game industry, making everything from mobile games, console games, etc.
When basing projections on SOM, it is critical to ensure analysis is done as gradually as possible. As the SOM calculation makes several assumptions, it is also essential that it is used with other metrics in arriving at a decision.
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