SOM is typically calculated by dividing a company’s sales (or revenue) by the total sales of the market over a specific period, then multiplying by 100 to express it as a percentage:
SOM = Company Sales / Total Market Sales x 100
For example, if a company generates $10 million in annual sales in a $100 million market, its SOM is 10%. This means it controls 10% of all sales in that market.
SOM differs from Total Addressable Market (TAM) and Served Available Market (SAM):
- TAM is the total revenue opportunity if the company captured 100% of the market.
- SAM is the portion of TAM the company can realistically serve based on its products, geography, or capabilities.
- SOM is the actual share of SAM the company currently holds—essentially, market share achieved.
Why SOM matters:
- Competitive Benchmarking: SOM shows how a company stacks up against competitors in real market conditions.
- Growth Indicator: Increasing SOM over time signals successful strategies and growing dominance.
- Strategic Planning: Understanding current market share helps set realistic revenue goals and prioritize growth initiatives.
- Investor & Stakeholder Confidence: SOM is often used by investors to gauge a company’s performance and potential.
- Resource Allocation: It informs marketing and sales strategies by highlighting where the brand has momentum or room to grow.
Example: A SaaS company operates in a $500 million global project management software market. Its annual revenue is $25 million, giving it a 5% SOM. By launching new integrations, expanding internationally, and increasing brand visibility, the company grows revenue to $50 million the following year—doubling its SOM to 10%. This increase reflects not just revenue growth but improved competitive positioning.
Best practices for tracking and using SOM:
- Define the Market Clearly: Ensure the total market size (denominator) is based on reliable, current data.
- Segment Where Useful: Track SOM by region, product line, or customer segment for more actionable insights.
- Combine with Other Metrics: Analyze SOM alongside market growth rates, TAM/SAM, and share of voice (SOV) for a complete picture.
- Monitor Over Time: Track changes in SOM regularly to evaluate the impact of marketing, sales, or product strategies.
- Use for Strategic Decision-Making: Identify high-opportunity segments where your current SOM is low but the market is growing.
Pro Tip: SOM is especially powerful when paired with growth rate analysis. A rising SOM in a growing market signals strong performance, while a stagnant SOM in a shrinking market can reveal early warning signs.