Total sales are an important metric for assessing a company’s financial standing and competitiveness. It’s also crucial to understand how a company’s success stacks up against that of its rivals. Market share is a metric that captures this comparison. In this article, we will define market share and demonstrate how to calculate it using total revenue or units sold.
In this guide we will cover:
- What Is Market Share?
- Benefits Of Market Share
- Market Share Examples
- How To Calculate Market Share Based On Total Revenue
- How To Expand Your Market Share
What Is Market Share?
The portion of a sector’s overall sales that is earned by one company is known as market share. By dividing the company’s total revenues by the total sales of the entire industry over a given time period, market share is calculated. Data analysts and other experts use this indicator to evaluate the size or presence of a company within a particular industry.
A successful company will typically have a high market share. Businesses with a sizable market share can set industry-standard prices because rivals will try to imitate them. Anti-competition laws, which are government-imposed sales restrictions meant to prevent one company from monopolizing an industry, may also apply to companies with a significant market share.
Understanding Market Share
The percentage of total sales that a company generates relative to the market or sector in which it competes is known as market share. Select the time period you want to look at before beginning to calculate a company’s market share. A fiscal year, year, or a number of years may be involved.
Next, determine the total sales for the company during that time. Then, ascertain the industry’s overall sales for the company. Lastly, divide the company’s total revenues by the total sales of its sector. For instance, if a company sold $100 million worth of tractors domestically last year and $200 million worth of tractors were sold in the U.S., the company’s market share in the U.S. for tractors would be 50%.
Companies typically report their market share in North America or Canada when calculating market share for particular nations or regions. Market share information is available to investors from a variety of independent sources, including trade associations, regulatory agencies, and frequently the company itself. However, some industries are more difficult to measure accurately than others.
Market Share = Total Company Sales / Total Industry Sales is the formula for market share.
Benefits Of Market Share
Market share growth and declines are closely watched by investors and analysts because they can indicate how competitive a company’s goods or services are. A company that is maintaining its market share is growing revenues at the same rate as the total market for a good or service. A company’s revenues will increase more quickly than those of its rivals if it is increasing its market share.
Gaining market share can enable a business to expand its operations and boost profitability. A business may try to increase its market share by introducing new or different products, lowering prices, or using advertising. In addition, by appealing to additional audiences or demographics, it can increase the size of its market share.
Impact of Market Share
Changes in market share have a greater effect on a company’s performance in cyclical or mature industries with low growth. Companies in industries that are experiencing growth, however, are less affected by changes in market share. Because more people are entering these markets, businesses can still increase sales even if they are losing market share. Sales growth and margins have a bigger impact on a company’s stock performance in this situation than other factors do.
Market share is fiercely competitive in cyclical industries. In comparison to other factors, economic factors have a greater impact on the variation in sales, earnings, and margins. Due to competition, margins are often low and operations are run as efficiently as possible. Since sales are made at the expense of competing businesses, these businesses heavily invest in marketing initiatives or even use loss leaders to boost sales.
Companies in these sectors might be prepared to temporarily lose money on their products in order to pressure rivals into folding their tents or going bankrupt. They try to increase prices once they have a larger share of the market and their rivals have been driven out. This tactic can either succeed or fail, compounding their losses. As a result, many industries are dominated by a small number of powerful companies, such as discount wholesale retail, which includes Sam’s Club, BJ’s Wholesale Club, and Costco.
Market Share Examples
Real-world examples will help you better understand market share, so we’ve included some below for companies you may be familiar with.
Market share for Nike
Nike sells a variety of sports gear, street shoes, and accessories as part of the athletic footwear and apparel market.
Nike’s market share in the world for shoes alone is thought to be 29.25%. The company competes with Adidas and Under Armour in the market.
Market Share for Tesla
Tesla creates electric vehicles and is a participant in the automotive industry (EV). Tesla has an 18% market share in the EV market.
Even though that number might seem low, it’s important to understand that the global market for EVs is much smaller than the market for conventional vehicles. Tesla has a market share of.8%, while EVs have 2.8% of the automotive market. Because of these differences, relative market share analysis should be used to compare your company to its direct competitors rather than the market as a whole.
Market share for Google
Google is the most widely used search engine in the world with a market share of 91.86%. With just a 2.71% market share, Bing, the second-largest player in the sector, has little chance of challenging it.
You can start formulating a plan to boost your overall revenue after calculating your market share and determining how you stack up against your sector’s rivals.
How To Calculate Market Share Based On Total Revenue
No matter the industry, calculating market share is a fairly simple process. To determine market share for overall revenue, take the following four steps:
- Select a fiscal period
- Calculate the company’s sales
- Calculate industry sales
- Select a fiscal period
Choosing the fiscal year you want to analyze is the first step in determining a company’s market share. This may refer to a fiscal quarter, a single year, or a range of years.
- Calculate the company’s sales
The next step is to determine the company’s overall sales for the chosen time period. Market share for larger companies with products that span multiple industries would be determined separately for each industry and not based on the company’s overall sales.
As an illustration, a retailer that sells food, clothing, and furniture would base its calculation of market share in the grocery sector solely on its food sales. For each market segment—clothing, furniture, etc.—a separate market share value would be determined.
- Calculate industry sales
Calculate total market sales after calculating total sales for a specific company. Public access to this data is available in research reports and through trade organizations. Additionally, you could combine the sales for the major retailers to determine total market sales if an industry is dominated by a number of large retailers with few small business sales.
The final step is to divide the total sales of the particular company by the total sales of the sector. This calculation will yield a decimal number that, when multiplied by 100, can be converted to a percentage.
How To Expand Your Market Share
Here are a few methods your business can employ to increase its market share.
- Price reductions
Offering low prices is a great way to compete in your industry. This is the easiest way to increase your market share because customers frequently seek out cheaper goods.
It’s important to keep in mind, though, that not every brand should go for the less expensive option. You should make sure that you’re pricing your products fairly so that you can give customers value while not forgoing revenue opportunities in an effort to outperform the competition.
- Create new features and products.
Companies that are developing new technologies and innovating frequently see an increase in their market share.
Acquisition, also known as attracting new customers, is a key element in the production of revenue. New customers make new purchases, which results in higher profit margins and greater revenue contributions for the entire industry. Increased market share is directly correlated with larger contributions.
- Make your customers happy.
Working on current customer relationships is among the best ways to increase your market share.
You can encourage customer loyalty by exceeding the expectations of your current clients. Repeat business from loyal customers increases your company’s revenue and its contribution to the sector’s overall revenue. As was already mentioned, a higher market share percentage results from higher revenue contributions.
- Raise brand recognition.
Gaining market share relies heavily on branding awareness and national marketing. It’s critical to establish your brand so that clients are aware of you. You can increase your market share by becoming the go-to brand in a particular industry and a household name.
Larger businesses typically have the largest market shares because they can deliver goods and services more effectively and efficiently.
Market share is the percentage of a company’s total industry sales. A company has more sales than its rivals in its particular industry the higher its market share. Market share is a measure of a company’s size and level of influence within its sector. It may also be a sign of development and achievement.
In general, businesses aim to grow their market share. You can achieve this by implementing new technologies, providing a product of higher quality, using good marketing, acquiring rival businesses, and cultivating customer loyalty.