- What Is Market Share?
- How to calculate market share based on unit sales
- How to calculate market share using total revenue as the basis
- The Advantages of Market Share
What Is Market Share?
Market share refers to a company’s percentage of total sales in an industry. Market share is calculated by dividing the company’s total sales over the period by the industry’s total sales over the same period. This metric is used to estimate a company’s size in relation to its market and competitors. In an industry, the market leader is the company with the largest market share.
How to calculate market share based on unit sales
Along with estimating market share using total revenue, corporations frequently calculate market share using unit sales. Calculate market share variation using the following four steps:
Selection of a fiscal period
Similarly to the calculation of market share based on total revenue, the first step is to choose a fiscal period for the calculation.
Determine the total number of units sold by the company
The following step is to determine the total number of units sold during the fiscal period in question.
Determine the industry’s total unit sales
After the company’s calculation, you add the total number of units sold by the market as a whole. This information is accessible through the same channels as total revenue data, as businesses frequently calculate both when generating financial reports.
The final step is to divide the number of units sold by the number of units sold in the industry. This operation generates a decimal value, in which you can convert it to percentage by multiplying by 100.
How to calculate market share using total revenue as the basis
Calculating market share is a relatively simple process regardless of the industry. Calculate market share for total revenue using the following four steps:
Selection of a fiscal period
The first step in determining a company’s market share is to select the fiscal year for analysis. This can be a fiscal quarter, a fiscal year, or a range of fiscal years.
Determine the company’s revenue
The following step is to determine the company’s total sales for the specified time period. For larger companies with products that span multiple industries, market share would be calculated separately for each industry, rather than based on the company’s total revenue.
Compute industry revenue
After calculating total sales for an individual company, calculate total market sales. This information is available to the public through research publications and industry organizations. Additionally, if an industry is dominated by a few large retailers with a small number of small businesses, you can combine the sales of the larger retailers to calculate overall market sales.
The final step is to divide the total sales of each company by the total sales of the industry. This operation generates a decimal value and you can convert it to percentage by multiplying it by 100.
The Advantages of Market Share
Investors and analysts closely monitor changes in market share because they can indicate the relative competitiveness of a company’s products or services. As the total market for a product or service expands, a company that maintains its market share grows revenues in lockstep with the total market. A company that expands its market share will experience faster revenue growth than its competitors.
Gaining market share enables a business to achieve greater scale and profitability through its operations. A business can attempt to increase its market share through price reductions, advertising, or the introduction of new or different products. Additionally, it can expand its market share by appealing to additional audiences or demographics.