Serviceable Obtainable trade: How to compute Your SOM

As an commence-up founder, finding your place in a recent or existing trade is likely one of the first steps you’ll receive to launch a recent business or expand. You might have an exciting aspiration for a product or service, but if there’s no demand or chance, you’ll face an uphill battle turning your business concept into a achievement.

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

What is serviceable obtainable trade?

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

If you’re an ecommerce brand, you can gain a more realistic concept of your expected trade distribute by using SOM to inform your trade research and overall roadmap. SOM can assist you assess the potential turnover 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 trade for your business and the last layer of trade size analysis. Here’s a breakdown of other key trade size metrics and how they interrelate:

• Total addressable trade (TAM). TAM represents the entire trade demand and turnover potential for your corporation’s product or service category.

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

• Serviceable obtainable trade (SOM). SOM is a segment of SAM that captures the realistic trade distribute for your specific offerings, budgetary reporting for your historical business act, brand awareness, and competition.

TAM, SAM, and SOM are three metrics that represent different trade segmentation levels. TAM is the broadest consideration of what a corporation could earn from 100% of a particular trade. It’s meant to be an unachievable top-level view, unbound by trade 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 trade segment you can realistically capture.

Factors that affect SOM

• trade size and reach
• Product
• Competition
• Historical act and external research

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

trade size and reach

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

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

Product

Your product and its standard, worth, and uniqueness significantly affect SOM. What is the total trade demand for the particular product you schedule to sell? How many customers are able and willing to purchase your product at the set worth? What is your product viability—how relevant and fascinating is your product in conference your ideal buyer persona’s needs? A high-standard product in a recent trade can appeal to a larger spectators and navigator to a larger SOM.

Competition

The number and strength of competitors in your given trade heavily influence SOM. Are you offering a superior product to other companies? How does your pricing schedule contrast 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 trade? A highly competitive trade can reduce your SOM, but a compelling distinctive worth proposition (UVP) may be enough to set your product apart.

Historical act and external research

SOM accounts for your corporation’s previous act. Use essential business metrics like net returns, liquid assets, and operating liquid assets flow to comprehend your act and gauge turnover.

Quantitative data, like sales analytics, and qualitative data, like surveys with your customer base, can assist determine your corporation’s levels of brand ownership—the perceived worth of your corporation.

For startups and newer businesses without a act history, conduct external research about trade trends in your geographic location to approximate average annual turnover.

How to compute SOM

To compute SOM, multiply your previous year’s trade distribute percentage by the current year’s SAM. Here’s the formula:

Last year’s trade distribute % x This year’s SAM = SOM

To compute your trade distribute from the previous year, divide your last year’s turnover from last year’s SAM.

compute SAM by multiplying your total potential customers within your trade with the average annual turnover per customer, also known as annual agreement worth (ACV).

declare a cosmetics ecommerce business identifies its SAM at $100 million through trade reach and understanding of its geographic location. It earned $3 million in turnover the previous year, so it can compute its trade distribute like this:

$3 million in turnover last year / $100 million SAM last year = 0.03% trade distribute last year

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

0.03% trade distribute x $140 million SAM = $4.2 million SOM