Everybody likes pie. But, when it’s time to dish your share, how much is yours? Most companies try to keep track of how they are performing in comparison to competitors, but they may not have an objective measurement to track on a regular basis. Sure, you may have seen a competitor release its annual revenue and did some quick comparisons, but are you keeping track of the marketplace at large? Stakeholders and inventors certainly are.
Market share is a helpful calculation companies use to determine their share of the industry’s sales in a given time period. It’s a versatile calculation that can be used in many different ways to provide insights into a company’s competitive position.
What is market share
Market share is the percent of total sales in an industry that can be attributed to one company. This is a helpful competitive benchmark because it tells you how your company is performing in comparison to the overall market. Market share separates a company’s growth from that of the industry at large.
To understand why market share is important, consider that a company’s sales may grow due to an overall increase in demand or price affecting the entire industry. This means that a company’s revenue could increase while its market share simultaneously decreases.
Looking at revenue alone, the company may assume a favorable position. However, market share tells investors and executives how a company’s growth compares to that of competitors, rather than just compared to the company’s own revenue history.
Calculating market share
Market share can be calculated over any time period, whether it be a quarter or a five-year period. You can even calculate market share over multiple periods to determine how a company’s market share has evolved over time. Market share is usually calculated separately for each region (i.e., U.S. market share or European market share). Regardless of the time period you’re examining, the steps to calculate market share generally remain consistent.
First, you’ll need to know total sales for the industry at large in that time period. The accuracy of this information is important, so it’s important to find a reliable source. Industry trade groups and large analyst firms are usually the best places to find this information. If you can’t find recent, reliable data, you may need to move forward with the best source you can find or consider using relative market share instead (more on that later).
Next, obtain your company’s total sales over the same period. You’ll compare the two by dividing your company’s total sales by the industry’s total sales. The resulting number tells you the percentage of all industry sales that can be attributed to your company.
For example, if the auto manufacturing industry sold $100 million in Q1, and (the fictitious) Acme Auto Company. sold $10 million in Q1, the calculation tells us that Acme has a 10% market share.
If you can’t find data covering the entire industry, or if you care more about a few key competitors, a relative market share calculation is perfect for you. Here, you do the same calculations, but only for comparison with a select group of direct competitors or relevant businesses.
This method of calculating market share can also be helpful if executives simply want to know how the company compares to its biggest competitors.
The tools to help analyze market share
It can be tricky to pull together market data to create an accurate portrayal of industry sales. But, that doesn’t mean you should have to grind over calculations or analysis.
Causal helps pull together data points into simple calculations, and offers visualizations that make it easier to see where your company stands among the competition. This goes for any time period you need, and sharing the data with the team from within Causal makes it easier to spread information and gain perspectives from your leaders.
Analyzing and explaining market share
Market share can be used to guide many important business decisions and answer critical questions from executives. It is a figure that will be monitored by stakeholders and potential investors, so growing market share is a worthwhile pursuit.
Your analysis of market share may change depending on the needs of executives and stakeholders. For example, you may use market share over multiple points in time to demonstrate that your company is growing and becoming more competitive. Or you may conduct a competitive analysis showing how multiple industry players’ market shares compare. Executives may be wondering how their market share differs by region, or how much the company has grown in a region over a certain time period.
It’s important to consider market share in the larger context of your business. For example, it may not be helpful to calculate market share over a time period that is especially low or high in sales, because it won’t accurately reflect average revenue.
Instead, it may be more beneficial to focus on a longer time period. Similarly, a company may have increased sales by decreasing margins. This could cause it to grow market share without significant profitability. This is sometimes a strategy companies use to push out the competition, but it’s considered risky.
Growing market share indicates a competitive advantage and more scalability for the company. As a company has a larger loyal customer base and more revenue, it can often lower prices, thereby increasing competitive advantage even further. For this reason, increasing market share is a huge goal for many companies.
There are many ways to expand market share, most of which focus on increasing revenue. Lowering prices, adding new products or features, increasing brand awareness through marketing or excellence in customer experience, and other techniques are all on the table in pursuit of a bigger piece of the market pie.