Market share is a common way of comparing performances by companies or for measuring a company’s standing within its industry as a whole. The greater the market share, the more dominant a company is within its industry. If a company is increasing its market share, it is growing faster than its competitors.
TL;DR (Too Long; Didn't Read)
Dividing a company’s sales by its industry’s sales gives you its market share.
Define the Market
You must define a company’s market before you can determine its share. Define the market in terms of geographic area covered, types of products sold, and demographics of customers served. The more specific the market is, the more indicative of competitiveness market share will be for the company you are studying.
If you are evaluating one of five barbecue restaurants within a 25-mile radius with an average entree cost of $10, then calculating its share of the market of those five restaurants is more helpful than determining its portion of the 100 restaurants of all types and price points within that same geographic area.
Calculate Market Size
You must know how big a market is to calculate a company’s share. Much of the information needed to determine a market’s size can be found online through secondary research sources such as market research sites, government statistics and news stories. Primary research, or field research, like interviews with restaurant owners, also can be helpful. Calculate the market’s total size by pulling from multiple credible sources whenever possible to get the most accurate market size.
Choose a Share Measurement
The share of sales in terms of dollars may be the most common calculation of market share, but share also can be measured in terms of units sold or customers served. Choose the most appropriate term based on the type of industry and the information available. In the case of the barbecue restaurant, calculating market share in dollar volume may be more practical and insightful than the number of meals sold.
Add all the sales that a company made during a specific period, such as a month, quarter or year. Then compile the total for all of the companies within the market during that same period. For example, total the $10,000 in sales that the barbecue restaurant you are researching made in a month. Then add that to the total of $60,000 that the four other restaurants combined sold in the same month. The market size is $70,000.
Calculate Market Share
Dividing the total sales of the company that you are researching by its industry's total sales in the period you are studying gives you its market share. So, divide the $10,000 for the barbecue restaurant that you are researching by the $70,000 in total monthly sales for the market. The market share is 14.3 percent.
- Entrepreneur: 5 Strategies to Effectively Determine Your Market Size
- MarketResearch.com: 5 Steps to Estimate Your Market Size; Priority Metrics Group
- Investopedia: How Do I Determine a Company’s Market Share?
- Dummies.com: How to Calculate Market Share for Your Business Marketing Plan
- AccountingTools.com: How to Calculate Market Share
Jim Molis has more than 20 years of experience writing for and about businesses. He has been a business reporter for the Columbus (Ga.) Ledger-Enquirer, a managing editor of the Atlanta Business Chronicle and an editor of the Jacksonville Business Journal. He also has written for management consultants, professional services firms and numerous publications as a freelancer.