- Market share is defined as the proportion (or percentage) of specified products or services sold by a business within a given region (which may be a single community or the entire world). Measurements of market share can be broad, measuring how big a place a company has in a major industry. For instance, you might want to know the market share for McDonald's within the restaurant industry. Other times a market share is narrowly focused, looking at a single product line or sales within a restricted area.
- To measure market share, you need to start with information about the business's sales by units or dollar volume for the products or services or both. The size of the market must also be known. This can be determined by looking at published information in trade publications, published government studies and data collected by your local chamber of commerce or similar organizations. Determining a competitor's market share can be more difficult. Publicly traded corporations must publish the relevant information in their annual reports. However, privately held firms do not have to disclose sales or unit volume figures, so you may be limited to making an educated guess.
- For a large corporation, it's often useful to measure market share on a national or even global basis. On the other hand, management may want to measure and track the performance of the company within a smaller region or even a single city. For a small business, it makes little sense to determine market share on a national scale. For the majority of local businesses, their market area is limited to a single city or metropolitan area, and it's their share of that market that is of concern.
- Market share doesn't just refer to overall revenue. For example, a shoe retailer may want to know how big its slice of the shoe market is. However, suppose the company recently added athletic shoes to the inventory and wishes to track how well it is doing in this new market niche. At times, market share may be expressed in terms of units sold rather than dollar volume. For example, car dealerships are often evaluated by how many cars (units) they sell rather than the sales volume of the dealership.
- The importance of market share is that it helps forecast a company's future prospects--something of primary importance to both management and investors. If a company's market share is increasing, this indicates the company's revenues are growing at a rate faster than the industry average. Another useful feature of market share analysis is that it can help chart a course in poor economic conditions. For example, in a recession, a business might experience a fall in revenue. However, if market share remains steady or grows, this reveals the firm is holding its own better than others and is likely to be well positioned to take advantage of business opportunities when economic conditions improve.
