Market share is the percentage of the total sales in the market generated by a particular company over a certain period of time. This metric shows how large your company is compared to its competitors and the whole industry.
In the article, we explain why market share is important, provide the formula to calculate it, and offer strategies to increase your company’s market share.
Why is market share important?
Most brands want to increase their market share to beat the competition and become the largest company in the market. Below we explain why it is so important and how this percentage affects your business.
- Increased sales. The higher your company’s market share — the greater sales you have. Your company starts to work on a bigger scale and attracts more and more customers. It helps increase profits and develop a cost advantage to cover even a larger market share.
- Larger customer base. If your company gets a bigger percentage of the market, the number of regular customers will increase too. Loyal clients may recommend your brand, and by word of mouth, sales will increase even without paid promotion.
- The advantage in negotiations. The company’s domination in the market gives it power in negotiations with suppliers and retailers. Such brands can agree on better terms of cooperation, save money and increase their profits.
- Better reputation. If a company is strong and provides an excellent customer experience, it will have a good reputation and become well-known throughout the market. In such a way, you can boost the company further and broaden the customer base.
- Less spending on marketing. Companies with a large market share tend to spend less money on product promotion compared with the total revenue. Customers are already aware of your brand, and the business should only maintain this position. Moreover, there is a “bandwagon effect,” which means that popular brands are more visible in the stores, and the sales personnel promote them more often.
- Higher profits. All the previous points mean that the companies with a large market share earn more. They create a barrier for new competitors to enter the industry and need fewer efforts to sell their products. Moreover, if the market expands, the companies with the greatest market share increase their profits, unlike their smaller competitors.
As you can see, it is vital for businesses to define and expand their market share. Continue reading to discover different ways to calculate it.
How to calculate your market share?
There are two main ways to calculate it: based on total revenue and units sold. We will describe both of them and provide formulas and examples below.
Based on a total revenue
You need to define the revenue of your company and the revenue of the whole market during the chosen period. To find information about total revenue, read research reports related to your industry. Then divide the first metric by the second one and multiply it by 100.
Market share = Company’s revenue / Total market revenue * 100%
Let's look at the example. Last year your company sold goods for 3 million dollars, and the revenue of the whole market was 20 million dollars. So, your market share is 15% (3/20 * 100%).
Based on the number of units sold
You need to identify how many units your company sold and how many units were sold by the industry as a whole over a certain period. In the same way, divide the first metric by the second one and multiply by 100%.
Market share = The company’s units sold / The industry’s units sold * 100%
For example, your business sells cars. Last year customers bought 4 thousand vehicles from your company and 80 thousand cars in the whole market. It means that your market share is 5% (4/80 * 100%).
Now you can calculate the market share of your company and understand the situation in the industry better. Find out how to cover a larger percentage of the market in the next section.
8 Strategies to Increase Your Market Share
There are two things business owners should concentrate on: efforts to increase their market share and holding strategies to maintain it. In this section, we will provide 8 tips to help you reach both these goals and boost your company in a competitive market.
- Introduce new technologies. To stand out from the competitors, you can use innovative techniques in development, launch new features or offer cutting-edge products to the market. Customers interested in this innovation will switch companies and buy from your brand. Some of them can become regular ones. In such a way, your market share will increase, and the share of your competitors will decrease.
- Work on customer relations. Khoros states that 65% of customers switch brands after a poor experience. Focus on providing only a positive customer experience to maintain and increase your market share. Improve customer loyalty and customer satisfaction to turn clients into regular ones. According to Qualtrics XM Institute, consumers who rate service as “good” are 38% more likely to recommend that company. In such a way, you can increase market share via word of mouth without huge spending on product promotion.
- Appeal to other audiences. Expanding a target audience is one more way to cover a bigger market share. Think about people who can be your potential clients but do not appeal to the image of an ideal customer. Analyze their demographics, behavior, social status, needs, pains, and preferences. Then find the competitors targeting this audience and define their advantages and disadvantages. Develop a strategy on how you can beat this competition. Start to attract new customers by active product promotion and increase your share on the market.
- Increase quality. According to Super Office, product quality is one of the main things that form customer experience, which is the top priority for 45.9% of companies for the next five years. Consequently, if your brand has high quality standards, it will become your competitive advantage, help you stand out from competitors, and increase the market share.
- Promote actively. You can also increase brand awareness to cover more potential customers. 71% of people are more likely to choose the product from a brand they recognize, states Global Banking Finance. Active marketing campaigns will help you attract these new clients and become the leader in the market.
- Hire talented employees. Right people will work for the benefit of the company. They may help you with fresh ideas and take a new look at routine processes. If you hire talented employees, you are more likely to decrease costs on their turnover and training and, in such a way, devote more resources to gaining power on the market.
- Offer lower prices. This is one more effective way to attract new clients. According to Super Office, pricing is the main focus within 20.5% of companies for the next 5 years. Think about the ways to provide sales and bonuses for customers. It might be difficult for your business in the short term, but it may help increase your market share and give some benefits in the long term.
- Buy a competitor business. There are two things the company gets after this step. Firstly, you cover a bigger percentage of the market because the competitor’s customers become your brand’s ones. Secondly, you reduce the competition and have more chances to become the leader in the sphere.
Congrats, now you understand what a market share is and why it is important, can calculate the market share of your company, and know the ways to increase it.
Last Updated: 10.02.2022