How to Calculate SOM (Serviceable Obtainable Market): A Founder's Guide

The third market figure is the one you are actually claiming you can capture, which makes it the one you will be held to.

It has to be built from your own capacity rather than from a share of somebody else's market. A number derived by taking a percentage is not arguable, because nothing in it connects to anything you control.

This covers what the figure means, two approaches to deriving it, how to check one against the other, the things that make an investor stop reading, and how to test how sensitive the answer is to your assumptions.

SOM is the slice of your SAM you can realistically capture in 3-5 years. It is the number investors stress-test hardest because it is your de facto revenue ceiling for the planning horizon.

SOM Definition

SOM = the market share of SAM you can win given your sales capacity, competitive position, pricing, and existing traction. Unlike TAM and SAM, SOM must be grounded in your actual go-to-market plan.

How to Calculate SOM: Two Approaches

Approach 1: Bottom-Up Sales Model

Build from your actual sales engine:

Approach 2: Market Share % of SAM

If SAM = $500M and you project capturing 2% in 5 years, SOM = $10M. Justify the 2% with comparable company benchmarks, win rates, or industry growth data.

Triangulation: Use Both Approaches

Run both models. If the bottom-up sales model gives $6M and the 2% market share gives $10M, the conservative floor is $6M. Use that as your SOM and be explicit about the assumptions.

Investor Red Flags in SOM

Sensitivity Analysis for SOM

Show three scenarios: base, bull, bear.

Turning the Number Into a Plan

The figure is only worth deriving if something follows from it, and what should follow is a plan somebody can be held to. A number that sits on one slide and appears nowhere in the operating plan tells a reader that the analysis was done for the deck rather than for the business.

Work it backwards into capacity. If the figure implies a certain amount of revenue over a period, and you know roughly what an account is worth and how long a sale takes, then it implies a number of closed deals, which implies a pipeline several times larger, which implies a quantity of qualified conversations, which implies people and spend. Each of those steps is an assumption you can argue about, and that is the value of doing it: the argument happens now, with you, rather than later, with a board.

Two things usually fall out of the exercise. The first is that the hiring plan and the target do not agree, normally because the plan assumes new starters are productive immediately. The second is that the marketing budget implied by the pipeline is not the budget in the plan. Both are better found on a whiteboard than in the second quarter.

• Convert the figure into closed deals, then into pipeline, then into the activity that generates pipeline
• Build in the time it takes a new hire to become productive, which is the assumption most often left out
• State the conversion rate you are using and where it came from, even if it is a guess, so it can be revised rather than rediscovered
• Re-run it after two quarters of real data, because the first version is a hypothesis and the second is a forecast

Frequently Asked Questions

Written by

Abhinav Gupta, CPA, CA, MBA

Abhinav works with business owners across the US on industry-specific bookkeeping, from dental practices and restaurants to construction and e-commerce. He writes about what each trade's books actually need. Connect on LinkedIn