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Estd 4.22.2023
In the competitive landscape of SaaS, accurately assessing your market potential isn't just a strategic exercise—it's essential for survival and growth. While many executives are familiar with Total Addressable Market (TAM) and Serviceable Available Market (SAM), the Serviceable Obtainable Market (SOM) often receives less attention despite being arguably the most actionable metric of the three. This post explores what SOM is, why it matters to your bottom line, and how to measure it effectively.
What is Serviceable Obtainable Market (SOM)?
Serviceable Obtainable Market represents the portion of your market that you can realistically capture in the near term with your current resources, capabilities, and competitive position. Think of it as your company's expected market share within your serviceable market—what you can actually obtain given your current business reality.
To put this in context, SOM sits at the end of a progressive narrowing of market definitions:
Total Addressable Market (TAM): The total market demand for a product or service—the theoretical ceiling of potential revenue if you had 100% market share with no constraints.
Serviceable Available Market (SAM): The segment of TAM that you can realistically target with your specific product offering and go-to-market strategy.
Serviceable Obtainable Market (SOM): The realistic portion of SAM that you can capture in the foreseeable future (typically 1-3 years).
For perspective, if TAM for enterprise collaboration software is $50 billion globally, your SAM might be $5 billion (focusing on mid-market companies in North America and Europe), and your SOM could be $75 million based on your current competitive position and resources.
Why SOM Matters for SaaS Executives
1. Resource Allocation Precision
SOM forces you to be brutally honest about where to deploy your limited resources. According to OpenView Partners' 2022 SaaS Benchmarks report, companies that align their go-to-market investments with precise SOM calculations showed 23% higher capital efficiency than those focused primarily on TAM-based planning.
2. Realistic Growth Projections
When presenting to investors or your board, TAM can create unrealistic expectations. A specific SOM calculation demonstrates strategic focus and operational maturity. As Tomasz Tunguz of Redpoint Ventures notes, "The most successful Series B and C pitches I've seen center on a well-documented SOM rather than an impressive TAM."
3. Competitive Differentiation Clarity
SOM analysis requires you to articulate exactly why customers will choose you over alternatives. This clarity often leads to product roadmap refinements that increase competitive win rates. According to Gartner, SaaS companies that regularly reassess their SOM achieve 34% higher win rates against primary competitors compared to those that don't.
4. Cash Runway Management
Understanding your realistic market capture rate helps prevent the all-too-common SaaS trap of overspending on growth before product-market fit is truly established. According to CB Insights, miscalculating obtainable market size was cited as a contributing factor in 29% of SaaS startup failures.
How to Measure Your SOM Effectively
Step 1: Start with a Defensible Bottom-Up Analysis
While TAM and SAM can leverage top-down market research, SOM requires bottom-up precision:
- Identify specific customer segments where you have proven win rates
- Calculate average contract values for each segment
- Assess your sales and marketing capacity to reach these segments
- Factor in existing sales cycle duration and conversion rates
Example: If your current sales team can handle 200 qualified opportunities per quarter with a 20% close rate and $50,000 average deal size, your annual SOM might be around $8 million (200 × 4 quarters × 20% × $50,000).
Step 2: Apply Competitive Reality Filters
Adjust your initial calculation based on:
- Competitive density: In segments where you face 5+ established competitors, apply a market share cap based on your competitive win rate.
- Switching costs: For products replacing incumbents, factor in the percentage of prospects with prohibitive switching costs.
- Market expansion pace: Factor in the growth rate of newly serviceable segments as your product evolves.
According to a PwC analysis of B2B SaaS markets, most successful entrants capture between 2-8% of their SAM within their first three years, with the variance largely dependent on competitive density.
Step 3: Validate Through Multiple Methods
Cross-validate your SOM calculations using:
- Reference customer method: Extrapolate from your existing customer acquisition patterns in specific segments
- Competitor comparison: Analyze the growth trajectories of similar companies at your stage
- Sales pipeline extrapolation: Project from your current pipeline conversion rates and deal values
- Market testing: Use limited-scale campaigns to gauge response rates and acquisition costs
Step 4: Incorporate Feedback Loops
SOM isn't static. Create processes to regularly reassess based on:
- Quarterly analysis of win/loss patterns
- Changes in competitive landscape
- Product roadmap developments that expand your serviceable segments
- Sales efficiency metrics over time
Translating SOM into Actionable Strategy
A well-calculated SOM should directly inform:
- Sales capacity planning: Align team growth with realistic addressable opportunity
- Marketing budget allocation: Focus spending on segments where your SOM calculation shows highest capture potential
- Product development priorities: Prioritize features that expand your SOM in high-value segments
- Fundraising strategy: Time capital raises to align with SOM expansion milestones
Conclusion: SOM as Your Strategic North Star
While TAM helps you dream and SAM helps you focus, SOM helps you execute. In the increasingly competitive SaaS landscape, the companies that thrive aren't necessarily those addressing the largest markets, but those with the clearest understanding of which specific segments they can dominate.
By developing a rigorous approach to SOM calculation and making it a cornerstone of your strategic planning, you create a crucial advantage: alignment between market reality and your operational investments. In SaaS, where cash efficiency increasingly determines winners and losers, there are few metrics more valuable than a well-calculated Serviceable Obtainable Market.