Market share is one of the indicators that every company should know. Its function is to help the owners of these to know if the company is doing well or, on the contrary, it is necessary to change something so that their financial health can move forward. But what is market share and how is it calculated?
If this financial value is not clear to you and you want to know more about it, we will clarify everything for you below. Pay attention.
What is market share
Market share is an important indicator for companies since it allows evaluating their position in relation to their competitors. This way, a high market share can indicate that a company is successful in a specific market, while a low indicates that there are problems in its performance.
Firms use market share as an analysis tool to make decisions about your marketing strategy and your business planning. However, not only do they take into account this value, but they must monitor others to have a global vision.
Another of the functions that market share has is to be used to compare the performance of a company with that of its competitors in the same market. This way, companies identify strengths and weaknesses in their competitive position and adapt their strategy in the best possible way.
Types of Market Share Formulas
Now that you know what market share is, how about we talk about how to calculate it? Did you know that there are different market share formulas? That's right, there is not just one but, depending on the variables used, different ones can be created.
Therefore, from now on we want to notify you that many of them do not serve to determine if a company is successful or not, since it focuses only on a part of what would be the sales market. But it does not take into account other types of factors (such as, for example, the high production costs that it has to bear). For this reason, in itself, and alone, it is not useful as an indicator of the good health of the company, it must be taken together with other financial indicators that can help you obtain a more global vision of how the company is doing.
Having said that, How about we talk to you about the most used formulas?
Market share in sales
Sales market share It is one of the most common used to calculate the share of a company in a given market. This formula is calculated by dividing the sales of a company in a given period of time by the total sales of the industry in the same period of time.
That is to say, the market share formula is calculated as follows:
Market share in sales = (Company sales ÷ Total industry sales) x 100
The result obtained shows the participation of the company in the total sales volume of the industry. In addition, market share in sales can also be used to compare a company's performance with that of its competitors in the same market.
Market share in units
In this case, the elements that are used are the number of units sold by a company in a given period of time and the total number of units sold in the industry in the same period of time.
Do you want to know how it is calculated? The formula would be:
Market share in units = (Number of units sold by the company ÷ Total number of units sold in the industry) x 100
In this case, you must take into account that it shows the number of units sold by the company in relation to the total units sold in the industry. Hence It is particularly useful in industries where products or services are sold in units, such as in retail or in the food industry.
Market share in value
This formula uses as factors, on the one hand, the value of sales of a company in a given period of time and, on the other, the total value of sales of the industry in the same period of time.
Thus, the formula would be as follows:
Market share in value = (Value of company sales ÷ Total value of industry sales) x 100
Its objective is to show the participation of the company in the total value of industry sales. For this reason, it is one of the most used in industries in which products or services have different prices and profit margins, such as the pharmaceutical industry or technology.
In addition, it may be more relevant in companies that sell products or services with high prices, since it shows their ability to generate income in the market. Also, also You can compare the performance of a company with that of its competitors in the same market.
Now, This fee does not always reflect the number of units sold. Because it is based on the monetary value of sales instead of the physical volume of units sold, the data may not be correct.
Relative market share
Another of the formulas to calculate the market share of a company is this, where the position of a company in the market is compared with that of its direct competitors. Instead of calculating a company's absolute market share in terms of sales or units, relative market share is calculated as a percentage of the total market share of all competitors in the market.
Thus, The relative market share formula can be expressed as follows:
Relative market share = (Company's market share ÷ Total market share of all competitors) x 100
Let's give an example: Imagine that a company has a market share of 10%, however, the total market share of all competitors is 50%. In this case, and applying the formula, we would have (10% ÷ 50% x 100). From which we get that the relative market share of the company would be 20%.
This formula is quite useful in the sense that it checks how well a company performs in the market compared to its direct competitors. If the value is high it may indicate that a company has a competitive advantage over its rivals and is gaining market share at their expense. On the contrary, if it is low, it would indicate that you are losing ground to your competitors. And that, therefore, you have to take action.
Now, you should know that this formula does not take into account the market share of other companies that are not direct competitors, so the values cannot be firmly believed since the entire market is not taken into account.
Market share based on number of customers
This formula is calculated by dividing the number of customers of a business in a given time period by the total number of customers in the industry in the same time period.
The formula would be:
Market share in customers = (Number of company customers ÷ Total number of customers in the industry) x 100
It is commonly used in industries where customers tend to make recurring purchases, such as subscription services or banking services. In these cases, the number of customers is an important indicator of a company's success in the market. Especially if it is compared later with that of the competitors.
Has it become clearer to you what market share is and how it is calculated?