This is part 3 of 3 of our discussion on market size. Part 1 covered Total Addressable Market (TAM), and part 2 Serviceable Available Market (TAM). In this final segment, we look at Service Obtainable Markets (SOM) or estimating your piece of the pie.
As a reminder, this process is about working your way into a more detailed and specific definition of your market.
With your estimate of SAM in hand, you can now look at how much of the available market you could hope to capture, or in other words, your marketshare.
Fundamentally you want to answer two questions at this point:
- How much of this market do I have today (whether counting individuals, accounts, or $ denominated)?
- How fast can I grow relative to the market’s growth?
For the first question, use the definition of your SAM and estimate where you are today. What is your current share of that market? Also, look at the past trends (potentially with some healthy discounting of 2020/2021).
For the second question, look at your unit economics or what it costs to acquire a new account. What is the retention/church rate? How effective are cross-selling activities?
These factors can help develop a range of outcomes you might realistically achieve. Based on your current budget, how much will you be able to acquire and retain this year? Will that reduce, maintain, or grow your share of the market? If your goals exceed this amount, how much more budget/effort is needed, or how much more efficient must you become in acquiring and retaining accounts?
This approach may seem like a lot of trouble to answer all of these questions. However, doing the hard work, research, and forcing the organization to decide on TAM/SAM/SOM definitions will pay off.
If you can get to a describable market definition and have a reasonable approach to meet your goals, you will have the foundation of an honest-to-goodness achievable plan.
MOST OF YOUR COMPETITORS WON’T BE THIS METHODICAL OR DISCIPLINED
Many traps can undo a sound strategy at this step. Organizations will rely on the pet projects (like scraping a customer analytics project to pay for naming rights to the boss’s alma mater stadium). Poor framing of your competitive position can lead to broad approaches to a wide geographic area against a dozen larger competitors. While there can be some merit in tactics like this, they cannot often show attributable and incremental progress and produce poor results.
Invest the time and effort to be focused. The clarity that comes from this approach will give you a north star to point your team at and serve as a way to weed out distractions and less effective tactics that will do little to help you meet your goals.
Did you find this series valuable? Would you like to discuss your specific situation and how your own data can accelerate your short-term progress? Reach out. We have the experience, skills, and assets to reduce risk and avoid wasted time achieving your goals this year.