What is market share? Formula and how to calculate it for growth

As a small business owner, it’s important to understand the performance of your own business and compare it with your competition. Market share is the key performance indicator for measuring how you’re doing relative to your industry.

This knowledge can help you develop your marketing strategies, identify untapped areas, and plan future expansions. More so, 48% of businesses fail within the first five years—having a plan to grow your market share can improve your odds of survival. 

Let’s look at what market share is, how to calculate it, and what it means for the success and longevity of your business: 

How do you calculate market share?

Why your market share matters

Market share examples

How to gain market share

Grow your business with confidence

What is market share FAQ

How do you calculate market share? 

Calculating market share can be relatively simple to do. 

By calculating market share, business owners can get a general idea of their market penetration, with the market leader owning the largest market share. It’s a metric used to determine your company’s competitiveness in your market as a whole.

Let’s look at the ways to calculate market share: 

Use the market share formula 

The market share formula is straightforward, where you divide your company’s sales over a certain period (such as quarter or year) by the total sales of your industry. Then multiply that by 100 for a percentage. The market share formula is: 

Market share = (Your company sales / Total industry sales) x 100 

To use this formula, you’ll estimate how much money consumers spend on products or services like yours in your market area each year. Then, divide your company’s annual sales revenue by the total market spending to get your market share.

Note that you can also use units in the market share formula instead of revenue. For example, the formula would be your company’s total units sold divided by the industry units sold multiplied by 100. 

For example, if annual spending on products like yours in your market area is $1 million and your business generates $100,000 in annual sales, your market share is 10%.

Estimate based on customer base

If you know your customer base and have a good estimate of the total number of potential customers in your target market (also known as your total addressable market), you can calculate your market share based on the proportion of customers you serve.

The formula for estimating your market share using your customer base includes: 

(Your customer base / Total addressable market) x 100

For example, if you have 250 customers and your target market has 1,295 potential customers, your market share would be approximately 19.3%.

Relative market share

Finally, there’s relative market share, which uses the relative market share formula:

(Your market share / Largest competitor’s market share) x 100

This compares your market share to that of your biggest competitor. It gives you a sense of how you're performing relative to the market leader.

Why your market share matters

Market share is a key indicator of a company's competitiveness. When a company increases its market share, this can improve its profitability. This is because as companies increase in size, they can also scale, offering lower prices and limiting their competitors' growth.

Understanding where you stand with competitors can help you: 

• Improve your business profitability and profit margins
• Make more informed operational decisions such as scalability
• Create brand loyalty with your customers

A strong market share can help protect your business from competitors. A larger market share typically means safer investments. But note that the upside can be limited for high market share companies, as they already have strong market success.

Market share examples 

Accurately calculating your market share can help you position yourself to overtake the competition and become a long-lasting business with continued market growth. Here are a few examples of how market share would be calculated in the real world: 

Using your company sales 

For example, say you own a bakery, and your company made $9 million in revenue in 2023. The bakery industry made a total of $309 million in revenue for the year.

Using the market share formula, the market share of your bakery is: 

($9 million / $309 million) x 100 = 2.9%

You divide $9 million by $309 million and multiply that by 100. Therefore, you own 2.9% of the bakery market share.

Using your units sold 

Say you own a company that builds speakers. In 2023, your company sold 1,133 speakers. The speaker industry in total sold 12,200 speakers.

Using the market share formula with units, your market share for your speaker business is: 

(1,133 / 12,200) x 100 = 9.3%

You divide 1,133 by 12,200 and multiply that by 100. Thus, your company had a market share of 9.3% based on units sold. 

How to gain market share 

Whether you’re the market leader with the majority of the market share or simply want to increase your position, there are some steps you can take to propel your business forward:

1. Research your competitors

An effective strategy to increase your market share is to research what your competitors are doing. Maybe they have a pricing strategy that is making them the market leader, or maybe their marketing strategy is more effective with their target customers. 

Whatever the scenario, there are some steps you can take to research your competitors to see where they are succeeding and where you might be able to overtake them: 

• Identify competitors, both obvious and secondary competitors.
• Gather information by reviewing social media, annual reports, and Google reviews.
• Analyze each key competitor and identify your competitive advantage over each.
• Assess what your competitors do better than you, such as faster delivery.

2. Prioritize customer loyalty

By building a strong bond with existing and new customers, you can protect your existing share of the market and even expand on it. This is helpful if a new competitor enters the space or if an existing competitor unveils a new product or feature that might upstage yours. 

Some key considerations for attracting customers and increasing loyalty are:

• Listening to customer feedback
• Rewarding customers
• Providing extra value
• Increasing responsiveness 

Happy customers are more likely to recommend your business to others, leading to increased market share.

3. Introduce new products and technology

Introducing new business technology to your company is a great way to increase your market share and make yourself more relevant in the marketplace. Bringing the newest technology and innovation to your customers is a way to maintain a leg up in your competitive landscape, making customers loyal to your brand and even causing some customers to switch from a competitor. 

For example, if your brand has a phone app that allows customers to place an order ahead of time for pickup and your competitors don’t, you might find more customers attracted to your brand for ease of access.

4. Hire talented employees 

It's no secret that customers want a great customer experience. One of the best ways to get and keep customers is to have talented employees ready to greet, interact with, and serve them—no matter the business. 

Some ways to attract and hire talented employees are:

• Providing benefits, such as health and dental insurance
• Offering options for paid time off (PTO), sick time, or vacation time
• Presenting opportunities for continued skill development 
• Allowing flexible schedules, if possible

5. Increase your brand awareness 

One of the most effective ways to increase market share is to acquire a competitor. This not only allows you to acquire the competitor’s already existing customer base within your target market but also inherently reduces the number of competitors you’re competing against for market share. 

Regularly evaluate your strategies and tactics to identify areas for improvement. Stay up-to-date with industry trends and competitor activities to maintain a competitive edge.

Grow your business with confidence 

Determining what your market share is can seem overwhelming at first, but it’s a great way to ensure your long-term success as a small business owner. 

Although your market share can help define your success, don’t forget to take into account how your competitors are doing in the same landscape by using market research to refresh your strategies as needed and fill in any gaps they may have. To better understand how you stack up, consider using accounting software like QuickBooks Online for cash flow analysis.