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Basic Guide To Market Share: What It Is and How To Calculate It

What is market share?

Market share is the portion or percentage of a specific market that a company or product controls, which helps determine its competitiveness and success.

As a marketer, you need to know your company’s market share to assess how you compare to the competition and create effective marketing campaigns. But what is market share, and how do you calculate it?

In this post, we’ll outline what market share is, how to calculate it, and how you can increase yours online. Here’s a quick rundown of what we’ll cover:

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What is market share?

A company’s market share is the proportion of its revenues it accounts for within a given market or sector. It is the percentage of overall industry revenue attributable to the sale of your company’s goods and services. Competition comes from both market giants and smaller businesses.

What is relative market share?

Relative market share indicates its performance compared to its primary rival. Relative market share is a proportion of the top earner’s sales, whereas market share represents the company’s overall sales in the market.

Why is market share significant?

Understanding your company’s market share can help you gauge its size relative to its competitors and the industry. By monitoring it over time — say once a quarter — investors may see which businesses are growing and which are losing ground in the market and identify potential targets for espionage.

How the market is divided among the various players can tell you a lot about the state of the industry, from the degree of competition to whether several small businesses dominate the market to revealing broader trends like whether consumers are shifting their preferences from one product category to another.

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How to calculate market share

To calculate a company’s market share, you divide the total sales for a particular product, service, or industry by those of your company for the same period. This indicator provides an overarching picture of a company’s size in the context of its industry and rivals.

Market share formula

For example, let’s say you own an American clothing retailer, “New Fashion.” Its annual sales are $1.5 billion, while consumers in the United States spend a total of $100 billion on clothing, meaning your business holds a 1.5% share of the US retail market.

Calculations: Market share = 1.5/100 * 100 = 1.5%

In short, knowing your market share will give you an idea of where you stand within your industry and how you stack up against your immediate competitors.

How to calculate relative market share

To calculate relative market share, divide your share by that of your most direct rival, then multiply the result by 100. The outcome will reveal how much of the market you hold compared to your primary opponent. See the formula for calculating a company’s share of the market below.

Relative market share formula

For example, if the dominant player in the US clothing market holds a 25% market share, the calculation would see New Fashion’s 1.5% share divided by 25%, equaling 6%.

Calculation: Relative market share = (1.5/25 = 0.06) * 100 = 6%.

Potential investors may see that New Fashion has a market share equivalent to 6% of the market share controlled by the industry leader.

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How to calculate market share for new businesses

Finding accurate statistics for new enterprises or sectors can be challenging as there is less demand for tracking such data. However, independent agencies and regulatory bodies regularly gather market share and comparable data for fast-growing sectors and existing markets.

For a new company joining an established market, determining its market share may be as simple as comparing its sales (or another relevant statistic) to the market’s total sales.

While it may be challenging to learn the exact percentages of each market segment in the United States, it is more challenging to know how much of any product or service is sold in the country.

Suppose New Fashion sells $5 million in apparel in the US in its first year of business while the country spends $500 million on clothing. In that case, New Fashion has a market share of around 10%.

However, it’ll become more challenging to evaluate New Fashion’s market share concerning that of its competitors and to gauge its size in relation to the industry under these conditions.

Remember the measures you employ when determining a new company’s market share. Is the percentage breakdown being done on a national or international scale? Is it for the entire company’s sales or a specific product line?

Although it may be more challenging to assess a new company’s market share, doing so is essential. It will allow stakeholders to monitor the company’s development over time and see if it is successfully penetrating the market, or if it is struggling to obtain market share from more established competitors.

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How to increase your market share online

You may employ several tactics to gain market share and become the industry leader.

Still, if those strategies aren’t sustainable, you’ll lose. Gaining a larger market share requires thinking long-term about how to capitalize on existing momentum and keep that share growing.

Follow these steps to help you get there. WebFX can also assist if you need more personnel or resources to create a market development strategy tailored to increasing your market share.  Our digital marketing services will grow your online presence and attract more leads, giving you more revenue to grow your business.

Contact us online or call 888-601-5359 to speak to one of our strategists to learn how we can help your business take over your industry!

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