Market Share Calculation: Learn How to Calculate Market Share

Calculating a company's market share is an important step in evaluating its competitiveness in a given sector. Market share is the proportion of a market's total sales that a particular business controls. To ascertain this, you must collect information on the company's sales and the overall sales of the market or industry. To calculate the percentage, divide the company's sales by the total sales of the market and multiply the result by 100. This measure can reveal a company's growth potential, pricing power, and overall market influence, and it offers insightful information about how well the business is performing compared to its rivals. In this blog post, we explain how to calculate market share, benefits, examples and more.

Key Highlights

• Market share is the proportion of a market's overall sales that a specific company has achieved over a given time period within an industry.

• A company's market share is determined by dividing its sales during a given period of time by the total sales of the industry.

• This measure is intended to provide a broad understanding of a company's size with respect to its industry and rivals.

• A business that leads its industry in terms of market share and overall power is considered the market leader.

• Developing a loyal client base, acquiring rival businesses, and introducing new technologies are all strategies for growing market share.

How do you Calculate Market Share?

The following three-step procedure can be used to determine a company's market share.

Step 1. Calculate the sales the company made during a given time period.

Step 2. Compute the total sales made by all industry players during the same period of time.

Step 3. Sales for the company / total market sales.

On the other hand, unit sales, or the number of product units sold, can be used to calculate a company's market share rather than revenue data.

1. Calculate the total number of unit sales by all industry participants in the corresponding period. 

2. Determine the number of product unit sales by a company over a given period.

3. Divide the company's unit sales by the market's total unit sales.

Market Share Example

Assume a smartphone manufacturing company generates revenue of Rs. 40 lakhs from selling phones in a fiscal year. The smartphone industry generated Rs. 1 crore from phone sales that same year. Then, the formula was applied to calculate the market share using sales revenue, and the company’s market share was 40%. 

Now the same smartphone company sold only 50 units, and the total number of phones sold by the different companies in the industry is equal to 500. Then using the method to find a market share of the company based on the number of units sold, the company’s market share is only 10%. 

In the first case, the company could be seen as a clear market leader and possibly have the highest market share as it accounts for 40% of the total market share. In the second case, it is less likely to have the highest market share. 

However, in other industries, like the soda industry, the company cannot charge a high premium for its product. The company with the highest market share in revenue is likely to have the highest units sold. In the soda industry, all the different brands sell their product at a similar price, if not the same price. 

Investors usually prioritise financial figures over raw numbers while comparing a company with its competition. Based on the nature of the business, analysts and investors use either or both methods to calculate the market share. However, a business may still figure out its market share using both ways to help plan new business strategies. 

Benefits and Impact of Market Share

Analysts and investors closely watch market share growth and decline since they may indicate how competitive the company's goods and services are compared. A business holding onto its market share expands its revenues at the same rate as the whole market for the good or service. A business that increases its market share will also increase its revenue more quickly than its rivals. 

Gaining more market share can help a business expand operations and boost profitability. A business may attempt to increase its market share by price reductions, advertising, or introducing new or distinctive items. Furthermore, it can increase the amount of its market share by making an appeal to different groups or demography.

Conclusion

A company's market share is the percentage of its industry's overall sales. The larger an organisation's market share, the more sales it generates compared to competitors in its industry.

Market share measures a company's size and level of industry influence. It may also serve as a sign of development and achievement. Businesses typically aim to increase their market share. Some strategies for this include using innovative technologies, producing a better product, using effective marketing, purchasing rivals, and cultivating client loyalty.