Market share is a company’s percentage of total sales in an industry. In essence, if you operate in $1 market and generate $100 million in annual revenue, you have a 1% market share.
However, in the online world, it is not always about sales. For instance, in the case of Facebook, the primary service they provide — social networking — is actually free. The advertising dollars they receive are part of a distinct market, that of online advertising.
Thus, with online businesses, you can also consider active users, traffic, and other metrics in addition to sales. Whichever criterion you use, it’s critical to remember that market share is never constant. Because it is subject to change, when people discuss market share, they typically refer to specific time periods.
How To Calculate Market Share
There are several popular methods for determining market share:
- The traditional market share formula is based on the total sales of the industry.
- The customer market share formula is customer-centric, so you have to know the total number of customers within your market.
- The relative market share formula is calculated using the market shares of the key players in your industry.
However, in the online world, you can easily replace sales and customers by traffic. As the former can be difficult to quantify unless you’re dealing with a market saturated with publicly traded companies.
How to Conduct a Market Share Analysis
Market share is merely a numerical value. To generate an action plan from this figure, you must first analyze and apply it.
Market share formulas can provide insight into how to approach business assessment. However, a more granular approach is required to obtain an accurate picture of your business’s performance. Otherwise, you risk comparing your local pastry brand to the global pastry market, which would be misleading.
Before you leap to conclusions, consider the following:
Define your objective: Market share is typically calculated on a country-by-country basis. Drilling down into your target market enables you to identify and compare regions where your potential customers live.
Compare yourself to similar businesses: Choose similar-sized businesses that share your audience demographics to help you evaluate your market share more accurately and comprehend the impact of your market share.
Investigate competitors’ market share: In some markets, a 10% market share indicates market leadership; in others, it indicates mediocre performance. To conduct business assessments, you must take a comparative approach and compare your market share numbers to those of your competitors.
Identify opportunities and gaps: Using the Custom Market Dynamics section of your Market Explorer report, you can examine the strategies of other market participants. This enables you to benefit from market leaders’ strategies and determine whether you can replicate them. When you notice significant increases, use Traffic Analytics, Organic Research, Advertising Research, and Social Media Tracker to help you fine-tune your strategies.