How to Define Market Share

The basic idea of market share is simple. Market share is the amount of a product or service (usually expressed as a percentage) that a business sells in a given market area. Knowing the market share a business has is useful for both investors and for businesspeople. Most of the time a business with a large market share will have lower operating expenses and thus be more profitable than smaller competitors. Changes in market share are a valuable clue to a company’s future prospects. For example, if the management of a company sees that their market share is decreasing, this can be n indicator that their competitors are using more effective strategies to attract new business. While the basic concept of market share is simple, it can get complicated when you want to define market share in a particular situation. The steps below tell you how to define market share for different scenarios.

Things You'll Need

• Your businesses revenue information
• Industry statistics for the particular product or service at the appropriate level (local, state or national)
• Calculator

Instructions

1. Decide which product or service you want to find the market share of. A business may want to know how it is doing overall. For example a shoe retailer will want to know their market share compared to other shoe retailers. In other cases the information desired is more specific (for example what market share does the retailer have in sports shoes alone).

2. Determine the target market area. A target market can be local, state, regional or national (even international). A small business that operates in a single metropolitan area doesn’t have much use for a “market share” that takes the whole country as the market. In this case the target market is a single city. At the other end of the scale a multinational firm may want to know its market share in entire nations. Large corporations often want this same information on a local level as well to evaluate how a particular division is performing.

3. Choose whether to measure market share in terms of units or revenue (or both). The most common form of market share calculation measures revenue. However there are times when the number of units sold is of interest . For example, a car dealership might want to know their market share based on how many units (new cars) have been sold in their target market.

4. Compile the company data you need after you’ve defined the particular market share information you are after. This will include company sales records for the products and services of interest along with unit figures if needed.

5. Research the information you need on industry revenues in your market area. Industry revenue figures are usually available from trade journals, financial publications and government agencies at the local, state and national level. Suppliers keep tabs on how much they are selling and may be willing to provide you with useful information on specific products in a target market.

6. Find out the market share of competitors (if possible). For publicly owned corporations this is usually not difficult—often you need no more than a copy of their annual report. When dealing with privately held firms the situation is more difficult since they don’t have to publicly disclose their revenue figures. You may simply have to make a rough estimate.