Calculating Market Share

Market Share is an easy term to remember for anyone who has some business terminology knowledge, even mid- to low-level managers. They are aware of the importance of Market Share in the success of a business. They don't know what market share is. The market share, in simple terms, is the contribution of a company's product to the overall industry sales.

Market share refers to the ratio of total sales for a company to total industry sales during a given period. Total sales can be measured in volume or value. Volume refers to the unit share. Value is the revenue share.

Market Share = Total number of units per company/Total industry units sold) x 100

Revenue Share = Value of company's total sales/Value market total

Calculation Method

Below are the steps to calculate a company's market share.

Decide the time period you wish to study. It could be a Fiscal quarter, a year, or multiple years.

Calculate the company’s total sales for that period.

- Note the industry sales for the period.

- Determine the proportion of total revenues for the company and industry sales during that period.

How do you define the Market?

• Market share analysis is only possible if you choose the right market to compare. There are many ways to define a market.

1. Industry

2. Regional Market

3. Product category

4. Segment

5. Competitors

• Competitors are key factors in calculating market share. A German luxury car manufacturer could, for example, define their market as the whole global transportation industry. However, this would be too broad to produce a meaningful metric. They might then compare their sales with their four largest competitors, or call their market the "European luxury car market".

Facts

- The number of products a company sells that are different from the products sold by other companies.

Market share growth is not always desirable. If a company's production is near its maximum capacity, it is not a good idea to plan to increase that capacity. If the additional capacity is not fully utilized, it will result in high costs.

Promotional activities and advertising expenses also have an impact on the company's profit.

- Competitors and rival companies launch a price war to reclaim their share.

- A possibility and likelihood of analysing the market share over multiple time periods to determine how a company compares with its competitors.

At the end

Market share does not necessarily mean that investors know everything. It only gives insight into the product's performance relative to the rest of the market. You should make sure to write down all your assumptions in order to use Market Share effectively. Also, be careful with market-research reports that often do not explain how the market calculation was made. Before investing in the company, make sure you do a thorough fact-check on the Market Share.