What is a market share?
Market share as mentioned above is the percentage of total sales in an industry that a particular company has generated. Market share is calculated by taking the company's sales over the period and dividing it by the total number of sales in the industry over the same period. The formula looks like this:
Number of sales over the period / Total number of sales in the industry over the same period = Market share
This metric is used to give a general idea of the size of a company in relation to the market and competitors. The market leader in an industry is the company with the largest market share.
Calculating market share
To calculate a company's market share, you first need to determine a period that you want to investigate. It can be a quarter, a year or several years.
Next, calculate your company's total number of sales in that period. Next, calculate the total number of sales in the company's industry. Finally, divide the company's total revenue by the industry's total sales.
For example, if a company sold $10 million worth of socks in the last year and the total volume of socks sold amounted to $20 million. Then the company's market share for socks would be 50%.
The calculation of market share is usually done for specific countries, such as a market share for Denmark only or Germany only. This is done because it helps to give an indication of how well placed your company is compared to competitors in the same industry.
Why is market share important?
Market share is important because it gives an indication of how competitive your company is. When a company upgrades its market share, this can potentially lead to better profits. In the financial market, market share can have an effect on share prices, especially in cyclical industries where competition is fierce. As such, market share can be either an advantage or disadvantage depending on the segment in question.
The effect of market share
Market share can have a vital impact on how companies in a particular industry perform. However, it is primarily low growth industries where market share has the greatest impact. In industries where growth is consistently high, companies will not be affected by market share if market share drops. This is because the industry's sales are at such a high rate that even if companies experience a drop in sales, they will still experience a positive rate even if they have lost a little on market share.
Some of the benefits you as a company will experience based on market share are for example:
- More sales. A higher market share means more sales for your business. The better known your brand is, the more potential customers will seek out your brand and buy your products.
- Larger customer base. A higher market share also helps to expand a company's customer base.
Companies that are part of the cyclical industry, on the other hand, will be greatly affected by market share. Here, the economic factor is important for the company's survival.
Increase your market share
A company can increase its market share by offering its customers innovative technology, strengthening customer loyalty, hiring talented employees and acquiring competitors.
New technology
Your company can increase its market share by being innovative. If your company can bring a new technology to market that your competitors haven't yet offered to customers, consumers will buy it from you. Many of these consumers become loyal customers, increasing your company's market share and decreasing the market share of the company they switched from.
Customer loyalty
To protect your existing market share, it's important to strengthen your customer relationships, that way customers are less likely to shop with your competitor just because they have offers. You can also increase your market share using the same simple tactic, as satisfied customers often talk about their positive experience to friends and family who then become new customers. Gaining market share through word of mouth increases a company's revenue without increasing their marketing spend.
Talented employees
Companies that are successful in acquiring the most talented and dedicated employees typically have the highest market share in the industry. By hiring the best employees, the costs associated with training and education are reduced and the company can allocate more resources to focus on their core competencies. Offering good salaries and other benefits is a conscious way to attract the best employees.
Acquisitions
Finally, one of the surest ways to increase your company's market share is to acquire a competitor. This reduces the number of companies fighting for a piece of the same pie.
Frequently asked questions about market share
Market share is the percentage of total sales in an industry that a company has generated. Market share is important because it gives you an insight into how competitive your company is compared to your competitors in the same industry. The total number of sales over the period is divided by the total number of sales in the industry. The result of this calculation gives you the market share There are several different ways you can increase your market share. For example, you can acquire the most successful employees in the industry or acquire the latest technology in the industry that competitors don't have, increasing customer loyalty.
