Navigating Serviceable Obtainable Market (SOM) – unlocking realistic growth potential

In our ongoing series on Understanding Market Potential, we’ve embarked on a journey to uncover the essential metrics that drive business growth and inform strategic decision-making. After exploring the significance of Total Addressable Market (TAM) and discovering the intricacies of Serviceable Addressable Market (SAM) we now turn our attention to the next crucial step: Navigating Serviceable Obtainable Market (SOM).

Unlocking realistic growth potential

Serviceable Obtainable Market (SOM) represents the portion of SAM that a company can realistically capture based on its resources, capabilities, and market dynamics. Unlike TAM, which paints a broad picture of the entire market universe, SOM provides a pragmatic outlook tailored to the company’s operational realities.

Why SOM matters: Aligning strategy with reality

Strategic resource allocation: By delineating the subset of SAM that is within reach, SOM enables organisations to allocate resources effectively, focusing on opportunities where they have a competitive advantage. This strategic resource allocation maximises ROI and accelerates growth in a sustainable manner.

Realistic goal setting: SOM serves as a yardstick for setting realistic growth targets and performance benchmarks. By aligning expectations with achievable market opportunities, companies can avoid overstretching resources or setting unrealistic goals that undermine morale and motivation.

Operational efficiency: Understanding SOM streamlines decision-making processes and enhances operational efficiency. By focusing efforts on markets with the highest probability of success, companies can streamline product development, marketing campaigns, and sales initiatives, optimising resource utilisation and minimising waste.

Calculating SOM: A strategic framework

Define target market segments: Identify specific market segments within your SAM that align with your company’s strengths and strategic objectives. Consider factors such as demographics, industry verticals, geographic location, and buyer personas to narrow down your target audience.

Assess market penetration potential: Evaluate your company’s market penetration potential within each target segment. Analyse factors such as brand recognition, competitive positioning, distribution channels, and customer acquisition strategies to gauge your ability to capture market share effectively.

Determine realistic market share goals Based on your assessment of market penetration potential, set realistic market share goals for each target segment. Consider both short-term and long-term objectives taking into account internal capabilities, competitive landscape, and market dynamics.

Continuously monitor and adjust: SOM is not a static metric but rather a dynamic framework that evolves with changing market conditions and internal capabilities. Continuously monitor your progress against SOM goals and adjust strategies as needed to stay aligned with market realities.

Let’s consider out hypothetical HR technology company based in Australia, specialising in cloud-based human resource management systems (HRMS) for small and medium size enterprises (SMEs).

Following on from our analysis of TAM and SAM, we have established a need to build a product that has a key point of difference, and this is a bespoke compliance and regulation product built into their HRMS solution.

This allows the business to focus on heavily regulated verticals with a key point of difference. Let’s look at the calculation of Serviceable Obtainable Market (SOM) for this company.

Example scenario

1. Define target market segments: from our TAM and SAM research.
   • Target audience: SME with 20-199 employees
   • Geographic focus: Australian
   • Industry verticals: Focus on low-risk and highly regulated industries: government, healthcare, education
2. Assess market penetration potential:
   • Brand recognition: low, no brand awareness and small number of customers, new entrant to market
   • Competitive positioning: Unique compliance model which no other competitor has
   • Distribution channels: direct sales and partner channels
   • Customer acquisition models: incentive based referral program
3. Determine realistic market share goals:
   • Based on market research and competitor analysis, set a conservative initial market share goal of 5% within the target segment of SMEs in Australia
   • Consider scalability and growth potential, with a long-term goal of capturing 15% of the target segment over the next three years.
4. Calculation of SOM:
   • Total Addressable Market in Australia: $750 million (as determined in Part 1 of our blog series)
   • Serviceable Addressable Market (SAM) for HR technology targeting SMEs in an Australia: $500 million
   • SOM calculation: Multiply SAM by the target market share goal:
   • SAM = $500 million
   • Initial SOM goal = $500 million * 5%= $25 million
   • Long-term SOM goal= $500 million * 15% = $75 million (over three years)

Recommendations for strategic growth

• Concentrate marketing efforts on raising brand awareness and establishing thought leadership within the target segments of SMEs.
• Leverage digital marketing channels, industry publications, and participate in relevant events to reach decision-makers in the HR space.

• Enhance product features and functionalities to align with the specific needs and pain points of SMEs in different industry verticals.
• Offer customisation solutions and flexible pricing plans to cater for varying budget and constrains and requirements.

• Forge strategic partnerships with HR consultants, industry associations, and business networks to expand reach and access new customer segments.
• Collaborate with complementary service providers to offer bundled solutions and create additional value for customers.

By implementing these recommendations and leveraging insights derived from TAM, SAM and SOM calculations, our HR technology company can unlock realistic growth potential, capture market share, and establish strong foothold in the competitive Australian market.

Conclusion: Leverage TAM, SAM and SOM for strategic growth

As we conclude our three-part exploration of market potential, it’s clear that Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM) are integral components of a comprehensive strategic framework for business growth.

By leveraging TAM, SAM an SOM in tandem, companies can optimise resource allocation, set realistic growth targets, and enhance operational efficiency.

To get started on your journey to calculate your TAM, SAM and SOM, sign up for your 14 day free trial in Firmable to get all the Australian data including market size, market segments and more. This data will give you the basis to begin building out your business strategy and sizing and give you precision and confidence in developing realistic growth potential and strategies for your business.