Market Share

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Market share represents the percentage of an industry, or a market's total sales, that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors[1]

Why is Share Market important?

Market share is an indicator of how well a firm is doing against its competitors. This metric, supplemented by changes in sales revenue, helps managers evaluate both primary and selective demand in their market. That is, it enables them to judge not only total market growth or decline but also trends in customers' selections among competitors. Generally, sales growth resulting from primary demand (total market growth) is less costly and more profitable than that achieved by capturing share from competitors. Conversely, losses in market share can signal serious long-term problems that require strategic adjustments. Firms with market shares below a certain level may not be viable. Similarly, within a firm's product line, market share trends for individual products are considered early indicators of future opportunities or problems.[2]

Calculating Market Share

Market share is the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity.

Unit Market Share (%)=Unit Sales (#)/Total Market Unit Sales (#)

Revenue Market Share (%)=Sales Revenue ($)/Total Market Revenue ($)

  1. Determine the period you want to examine for each company you are investigating. In order to make sure you are making an apples-to-apples comparison, you must examine sales in a specific time period. You can examine the sales over the length of a quarter, a year, or over several years.
  2. Calculate the company's total revenue (also called total sales). All publicly-traded companies must release quarterly or annual financial statements. These statements will include a record of all of the firm's sales, and may also include an itemized explanation of sales of specific product or service types within the footnotes of the financial statements. If the company you are examining sells a wide variety of products and services, it may not be useful to simply examine all of the revenue streams of the firm together. Look for information regarding its sales of a particular type of product or services.
  3. Find the total market sales. This is the total amount of sales (or revenue) the entire market is acquiring. The total market sales amount may be found through industry trade associations or publicly-available research reports. For a fee, companies such as NPD Group provide specific information about sales in a variety of national and international market sectors. Alternatively, you can add up the sales of the largest companies in a given product or service market. If a handful of firms dominate the industry with smaller firms making insignificant sales--such as major home appliances or automobiles--total the sales for all of the companies in the industry to calculate total industry sales.
  4. Divide the target company's total revenue by the entire industry's total market sales. The result of this division equals your company's specific market share. So, if a firm made $1 million dollars selling a particular product and all firms in the industry sold $15 million worth of it, you would divide $1 million by $15 million ($1,000,000 / $15,000,000) to determine the market share of the firm. Some prefer market share to be represented by a percentage, while others do not even simplify it into the smallest possible fraction (leaving it as $40 million/$115 million, for example). The form you prefer is irrelevant, as long as you understand what figure represents. [3]

References

  1. Hayes, A. (2019, September 5). Everything You Need to Know About Market Share. Retrieved from www.investopedia.com
  2. Marketing Metrics: Understanding Market Share and Related Metrics. (n.d.). Retrieved from www.linkedin.com
  3. Lewis, M. R. (2019, March 29). How to Calculate Market Share. Retrieved from www.wikihow.com