How to Calculate Market Share?
For its survival in present competitive world, it’s imperative for any business to compare its performance with respect to others in the same business is. Though any company would be aware of the fluctuations of its sales on yearly basis, it is insufficient for staying ahead of other in market. The sales of a company could drop due all round drop in the requirement of a product but the other and more important reason for that could be that the competitors have grabbed more hare of the available market and that could be troublesome. Unless you know your market share you can’t know your standing in that industry, making it imperative to keep calculating your share of the market periodically, preferably at the end of each quarter or annually. Here’s how to calculate market share.
Calculating Market Share
Gather maximum possible information about the product you are dealing or services offered in your region. For instance a company selling microchips at a national level would need to asses total such chips sold in your country on an annual basis and the total revenue generated by that sale. Likewise, if you are offering painting services in your district, you should find out how much money consumers in that district are spending for availing such services. When you are in an industry that deals with a lot of private companies, it may be rather difficult for you to get the required information. In such a scenario you’ll have to depend on the information available with market research organizations and chambers of commerce and industries.
2. Once you have collected all the relevant data, this is how to calculate market share. You can do it one of the two ways, each may give different result.
a) The first way involves the number of items. Let us say that last year 150,000 microchips were sold in the US and your corporation sold 150, 00 units. So, your market share would be 150, 00/150,000X100=10 %, meaning that last year your business sold ten percent of the total chips sold in the US.
b) The other way of calculating market share takes revenue in consideration. Let us say that last year the total amount which consumers in your district spent for painting services was $ 315,000 but your revenue was $43,500. In this case your market hare would be $43,500/$315, 00X100=13.8 %
Result received by calculating on the basis of number and revenue will be different as competitors would be selling their product at prices different from yours. Generally, it is recommended to use number based calculations for products while revenue based system is appropriate for service oriented businesses. Depending on the kind of your business, you’ll need to choose either of these two when it comes to How to Calculate Market Share.
3. If you keep tracking your market share regularly, you would know where your business is heading to. If there is a remarkable change in your market share, you should find its reasons. A reduced market share may mean your competitors are bagging additional business and you have to adopt new strategy for increasing your share of market. Increased market share indicates that your business is picking up and you just need to see that it’s being profitable for your company.
Now that you know how to calculate market share, you can take necessary steps to stay ahead of your competitors by suitably amending your business plans.