Business essentials: What you need to know about market share

As a small business owner, it’s very important to understand not only the performance of your own business but the overall performance (and missteps) of your competitors. One key indicator of performance is market share.

This knowledge of your vertical helps you develop better marketing strategies, identify untapped areas, and plan future expansions so you can leverage your strengths. We’ll cover what market share is, how to calculate it, and what it means for the success and longevity of your business. 

• What is market share?
• Benefits of market share
• How to calculate market share
• Ways to increase market share

Market share definition

Market share is the percentage of total revenue or items sold by a company compared to the industry's total revenue or items sold in the same timeframe. Market share is typically evaluated on a yearly or quarterly fiscal basis.

By calculating market share, business owners can get a general idea of their company in relation to competitors, 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.

4 benefits of market share

Understanding where you stand in relation to your competitors can provide you with quite a few benefits. These can include:

1. Increase in profitability: An increase in the overall share of market can improve your business's overall profitability and profit margins.
2. Impact decisions: A company can make more informed operational decisions such as scalability for products and services.
3. Manage the stock market: Market share can impact the stock market in some specific markets
4. Improve brand loyalty: By being cognizant of where you stand with market share, you can create brand loyalty with your customers.

How to calculate market share

Calculating market share is rather direct once you understand the steps. This process can be calculated either based on total revenue or total units sold. We’ve included step-by-step instructions for each below.

How to calculate based on total revenue

• Choose a fiscal period

The first step in calculating your market share is to identify the period of time you want to evaluate. This can be a fiscal year, fiscal quarter, or a different time period of your choosing. 

• Calculate your company's sales

Next, calculate your total sales for the period you identified. If you happen to span multiple industries (such as food and clothing), you would calculate this number separately for each industry, not based on your overall sales. 

• Calculate total industry sales

After you’ve calculated your own sales, you next want to calculate the total sales for the entire market. This information is available in research reports and industry associations which are made publicly available. As mentioned above, be sure to calculate the total based on each separate industry. 

• Divide

Finally, divide your company’s total sales by the industry’s total sales. This will give you a decimal; multiply by 100 to convert to a percentage. This is your percentage of market share based on revenue. 

How to calculate based on units sold

• Choose a fiscal period

Same as above — the first step is to identify the period of time you want to review. 

• Calculate your total number of units sold

Next, calculate the total number of units your company has sold within the identified fiscal period. 

• Calculate the total number of units sold by the industry 

Just like above, you can use research reports and industry associations to find the total number of units sold by the entire market. 

• Divide

Divide your company’s units sold by the total number of units sold by the whole industry. Be sure to multiply the decimal by 100 to calculate your percentage; this is your percentage of market share based on units sold. 

Market share examples

It can be tricky to understand market share calculation at first glance. Accurately calculating your market share can help you position yourself to overtake the competition and become a long-lasting business with continued market growth.

Below are a few examples of how market share would be calculated in the real world:

Market share example: Total revenue

You own a bakery called Bake It Up. Your company earned $19 million of revenue in 2021. The bakery industry in total had $110 million of revenue for the year 2021.

If you divide 19 million by 110 million, you get a market share of 0.172, or 17.2%. Therefore, you own 17.2% of the bakery market share in 2021.

Market share example: Units sold 

You own a company that builds speakers. In 2021, your company sold 1,133 speakers. The speaker industry in total sold 12,200 speakers in 2021.

Divide 1,133 by 12,200. You’ll see that your company had a market share of 0.09, or 9%, for units sold in the year 2021.

How can you increase your market share?

Whether you’re the market leader or simply want to increase your position, there are some steps you can take to propel your business forward. Here are just a few ways to increase your market share to help you become the industry leader:

• Prioritize customer loyalty
• Introduce new technology
• Hire talented employees
• Acquire a competitor 
• Research competitors

1. 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 especially 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 increasing customer loyalty are:

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

2. Introduce new 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 become 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. 

3. Hire talented employees

It's no secret that customers want a great customer experience. One of the best ways to attract customers is to have talented employees ready to greet, interact with, and serve customers, no matter what your type of business is. Some ways to attract talented employees are:

• Paying a competitive salary
• Providing benefits, such as health and dental insurance
• Offering options for PTO, sick time, or vacation time
• Presenting opportunities for continued skill development 
• Allowing flexible schedules, if possible

4. Acquire a competitor

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. Businesses of all sizes should have their eyes open for a good acquisition strategy.

Research 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
• This includes both obvious competitors as well as secondary competitors. 
• Gather information
• Gather information on your competitors by reviewing social media accounts, annual reports, Google reviews, and company websites.
• Define your competitive advantage
• Next, you will need to identify what competitive advantage you have over your key competitors. Analyze each key competitor and identify what advantage you have over each of them.
• Define their competitive advantage
• You will also need to identify what your competitors do better than you. Some may offer faster delivery or other things that would cause customers to choose them instead of you.
• Complete SWOT analysis
• You can use a SWOT analysis to assess your current business status—and you can create one for your competitors to better understand their current position and help predict their future strategies. 

Claiming your share of the market

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 is a large part of 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.