What is Market Share?
The Market Share is the percentage of revenue attributable to a particular company relative to the total revenue generated within a given industry.
Simply put, the market share of a company quantifies its percent contribution towards the total sales produced in a specific industry over a specified time frame.
- The market share is the proportion of the total sales in a specific industry attributable to a particular company.
- The formula to calculate market share divides a company’s sales by the total sales of the industry across a given period.
- The relative market share compares a company’s market share to its market leader, expressed as a percentage.
- The methods to increase market share include offering differentiated products, building customer loyalty to reduce churn, setting pricing rates efficiently, and utilizing effective customer acquisition strategies.
Table of Contents
- What is the Definition of Market Share?
- How to Calculate Market Share
- Market Share Formula
- How to Analyze Market Share
- Market Share Calculator
- 1. Market Share Calculation Example
- 2. Market Share Analysis Example
- How Does Market Share Impact Profitability
- How to Forecast Revenue Using Market Share
- How to Increase Market Share
- How to Protect Market Share
The market share of a company illustrates its size relative to the rest of the industry it operates in and its competitive positioning at present.
The process of estimating a company’s market share can be useful for estimating the revenue opportunity within a specific market.
- Low Market Share → There is likely more upside remaining in growth and scalability for the company.
- High Market Share → The company is likely a market leader, which might need to shift its priority to defending its existing share and profit margins from new entrants.
If established market-leading companies seek additional growth, the best course of action could be to implement one or more of the following strategies:
- Entering New or Adjacent Markets
- Introducing Products and Services into Current Mix of Offerings
- Engaging in M&A for Inorganic Growth (e.g. Add-On Acquisitions)
The market share of a company can be calculated using the following three-step process.
- Determine the Sales Generated by the Company Over a Specified Period
- Calculate the Sum of Total Sales by All Industry Participants Over the Same Time Frame
- Divide the Company’s Sales by the Total Market Sales
Conversely, the market share of a given company can be determined using the unit sales (i.e. number of product units sold), as opposed to revenue figures.
- Determine the Number of Product Unit Sales by a Company Over a Given Period
- Calculate the Total Number of Unit Sales by All Industry Participants in the Corresponding Period
- Divide the Company’s Unit Sales by the Total Unit Sales in the Market
The formula for calculating the market share of a company divides a company’s sales by the total sales of all companies operating within the respective industry over a specified period.
Where:
- Company Sales → The revenue reported by a particular company over a pre-defined period.
- Total Market Sales → The total revenue generated within a specific industry.
An alternative approach to compute a company’s market share is by using unit sales rather than monetary figures (i.e. revenue).
Using the unit sales approach, the market share formula divides the number of product units sold by a particular company by the total product unit sales in the entire industry.
Where:
- Company Unit Sales → The total number of product units sold by a particular company over a specified period.
- Total Unit Sales in Market → The total number of product units sold in a given market among all industry participants.
Note that it is critical that the time frame covered must match in the numerator and denominator for the metric to be practical.
The most straightforward method to analyze a company’s market share is to calculate the percentage of the market captured by a given company and determine if the company is positioned as a market leader with a substantial percentage of the market.
Further, tracking the historical trajectory in the company’s market share is useful for gauging its growth trends.
While market share growth is perceived favorably by practically all equity analysts and market participants, the retention of the prior market share – i.e. constant percentage – can also be a positive signal, particularly in a high-growth market.
Another closely related metric, the “relative market share,” is calculated by dividing a company’s market share by the market share belonging to its top competitor.
To estimate the relative market share, we take the market share of the company in question and then divide it by the market share of its top competitor.
The formula to calculate the relative market share is as follows.
The metric can gauge how a company fares against the current market leader, i.e. the market leader’s market share is used as the benchmark.