Market growth is simply an increase in the size of a market. The market may be for a single product, a product line or an entire industry. Market growth is typically expressed as an annual percentage rate. Comparing your company’s growth to the market growth rate provides a critical measure of performance. Suppose your sales grew by 12 percent last year. That sounds good. However, if the market grew by 20 percent it is bad news. Lagging behind growth in your market means your competitors are outpacing you and you are losing market share.
Define the market you want to measure. For example, you may want to look at market growth for a single product, a specific geographical region or your industry as a whole. Choose whether you want to measure growth in dollars or units sold. Select the time period you want to cover. Typically, market size and growth are measured annually. You will need data on market size for at least two successive time periods to calculate a market growth rate.
Select your research methodology and conduct your research. One option is to outsource this task to a market engineering firm that specializes in market research. If you elect to do the job yourself, the consulting firm of Frost & Sullivan advises caution. Unless you are in a large industry, reliable information may be scarce or nonexistent. Magazine, newspaper and government publications tend to lack adequate depth and accuracy. Frost & Sullivan suggests using primary sources such as corporate annual reports and Securities and Exchange Commission filings. You can supplement these sources with competitor interviews. Asking your competition for information may seem odd, but if you offer to share your findings, they will often provide the data you need to measure market growth.
Calculate market size for each time period you are measuring using the data gathered in Step 2. Suppose there are three companies in your market. Your firm is Company A. For the last two years, your sales were $15 million in year one and you experienced a 10 percent increase to $16.5 million the second year. Company B had sales of $25 million the first year and $30 million the second year. Company C's sales were $12 million and $13.5 million. Add up the figures for each year and you have market sizes of $52 million for year one and $60 million for year two.
Calculate market growth by subtracting the market size for year one from the market size for year two. Divide the result by the market size for year one and multiply by 100 to convert to a percentage. If market size for year one was $52 million and year two came in at $60 million, divide the difference of $8 million by $52 million and multiply by 100 for a market growth rate of 15.4 percent. Compare the market growth rate to your firm’s growth to see how well you are doing compared to the overall market.
- AndreyPopov/iStock/Getty Images