Besides other aspects of running a business, a company needs to know the real industry sales taking place in the market. The numbers can be obtained by identifying competitors and estimating their actual sales. The industry trade association collects and publishes the industry sales however, it does not list individual company sales. Each company needs to evaluate its own performance. But what does market share actually mean and why is it so important to a business?
What is Market Share?
If you are running a business or working for a major corporation, chances are you have heard about the “market share” concept. In fewer words, market share is the percentage of costumers that a company has managed to acquire from its desired market within a specific industry. The market share does not necessarily tell a business owner or manager anything about the financial health of the company, however, knowing the percentage of a market share offers an idea about the size and competitive advantage of the business when compared to the market competition.
How do you determine Market Share?
Regardless of the industry, every business is targeting a specific market and each company within an industry is selling a percentage of the market. A company’s market share can be obtained by dividing its total sales or revenues by the industry’s total sales over a fiscal period. To calculate a company’s market share, you first need to determine the period you want to examine such as a fiscal quarter, a year or more years. The second step is to calculate your company’s total sales over that period and to find out the total sales of the company’s industry. Finally, you need to divide the company’s total revenues by its industry’s total sales.
Why increasing Market Share is important?
Last but not least, business owners and managers need to understand that market share is like a big pie and the bigger the pie slice, the more profit potential. Market share is a valuable indicator for marketers too, that includes not only a customer’s assessment of a brand’s value proposition but also other factors that influence sales such as advertising and distribution.