This post was most recently updated on September 29th, 2019
Understanding how to calculate market share of your business should be your most important goal if you’re running a business, or thinking of starting one.
If used correctly, market share can give you a lot of understanding on your current standing as a business, and can also enable you to set a direction of where you want to take your business. Think of it as one of the tools used for self-analysis.
Why is it it important?
It’s important because it is the fundamental determinant of how your business is performing in the market against your competitors, what are the opportunities to grow, where can you source more business from, what is the value of you business, and a lot more.
Market Share Calculation
Calculating market share is simple, but you need to understand the context you’d be looking at market share in, and you need to be relevant.
Also, there can be a number of ways in which we can calculate market share. Are you looking for a market share formula? Well, it’s more of a process than a formula.
Following is how you would calculate market share:
- Market share is time relevant. It takes a long time, monetary investment and a lot of effort to gain market share in saturated market. It is usually considered on a 1 year, 5 year, or a 10 year basis; however it depends on what you want to look at. Do you want to compare your market share annually to see how you progressed? Or in 5 years, to understand if you’re close to your vision or not?
- Total your business’s revenues for that time period. If you sell multiple products, don’t mix all revenue streams. Market share is specific to a single category to improve relevancy to a category of products.
- Total the overall market / industry revenues for the same time period.
- For a publicly traded company, you will be able to get access to sales data through their financial reports.
- Many a times, you can also reach out trade associates or research companies to get these figures for a nominal cost.
- Or if you operate in an small business industry, you can try to estimate the potential size of your market by taking statistics in consideration
- Market Share Formula: Once you have the your business revenue and the market’s total revenue for the specified time period, divide your business revenue total by the market’s total to arrive at your market share percentage. You can also determine your competitor’s market share in the same way, however you would need access to their actual sales figures, or a very good estimate.
- For example if your business revenues were $50,000, and you estimated the total market size to be $200,000 in 2015 (January to December); your market share is 25%. Do remember that your and your competitors’ market share should add up to 100%.
How do you calculate market share for your business? I would love to know how you gather competitor information.