Any business that aspires to survive, thrive, and expand needs to know where it stands in its industry and in relation to competitors. Who’s the biggest? Who’s growing the fastest? Who’s falling behind? There is a single number that can help a company quantify this at a single glance, showing its piece of the industry pie—a measurement known as market share.
Here is what you need to know about market share, how to calculate it for your business, and how to use it to find growth strategies and, ultimately, increase profits.
What is market share?
Market share is a company’s portion of one or more key industry metrics that measure the total market, mainly sales or revenue. For example, a company with revenue of $1 million in an industry with total revenue of $100 million has 1% market share.
In other cases, the market share measures the number of products or units sold, a common metric for automakers. For ecommerce companies, revenue is a common metric, and so are the number of visitors to a business’s website and the volume of search traffic.
A company’s market share is a key indicator of its ability to compete in its industry. Increasing market share can boost profitability as a company becomes more efficient and achieves economies of scale, while declining market share suggests difficulty in keeping up with competitors. Investors and lenders generally perceive success when market share grows.
How to calculate market share
Calculating market share is done using the simple formula of dividing your company’s unit of measurement by the industry’s total units. In most cases, sales or revenue is the measure for market share. The market share formula is:
Your company’s sales / Total industry revenue
The market share formula can also use a measurement other than revenue. You may calculate market share based on your unit volume, or number of products sold, divided by the entire industry’s total unit volume. In ecommerce, companies might calculate market share based on web traffic, such as the number of website visits.
It’s important to use the right information in the market share formula for a consistent apples-to-apples comparison of your business to the total market. Your calculation should use the same time period, the same product or service, and the same region. In other words, don’t compare your 2024 sales with industry figures from 2023 or compare different areas. Best practice is to compare a US company to the US market, not to North America, which includes Canada and sometimes Mexico.
5 steps for calculating market share
- Choose a period
- Choose your measure
- Determine total market size
- Divide measure by market size
- Multiply by 100
You will need to make some decisions and do some research to calculate market share. Follow these five steps to get started:
1. Choose a period
Businesses typically track their results monthly, quarterly, and annually. A longer period is generally easier because more broad industry data is collected on an annual basis.
2. Choose your measure
Revenue and unit volume generally work for companies that make or sell products. Subscription-based businesses may use a different basis, such as monthly or annual recurring revenue, or monthly active users of a service, such as accounting software. Ecommerce businesses may use website traffic or some other measure of online shopper activity.
3. Determine the total market size
This is typically the total revenue for all sellers of the same product or service. For industries with publicly traded companies, there is plenty of market share data to determine total market size. For new industries or those dominated by privately held companies, there’s less data available. In this case, some market research is necessary to determine the total market size, or what’s sometimes referred to as the total addressable market.
4. Divide your measure by market size
If your company generated $20 million in widget sales in the fourth quarter, for instance, and total widget industry sales including yours were $80 million in the period, your share of the widget market is:
$20 million / $80 million = 0.25.
5. Multiply by 100
Multiply the decimal result by 100 to determine the market share as a percentage. For the previous example, the formula is:
0.25 x 100 = 25%
Market share calculation examples
Here are three quick hypothetical examples of market-share calculations, using sales, unit volume, and numbers of visitors:
Revenue share
Sun Jolt Co., which operates solar-panel power farms in the US, had annual revenue of $180 million in the most recent year. The total sales in the US market for solar-power generators was estimated at $900 million in the same year. Sun Jolt’s market share based on revenue was:
$180 million / $900 million = 0.20 x 100 = 20%
Volume share
Can’t Break Inc., which makes protective cases for smartphones and tablets, sold 500,000 units in the most recent month in the Asia-Pacific market, excluding China. Total industry sales for the region were 3.5 million. Can’t Break’s market share in unit volume is:
500,000 / 3,500,000 = 0.143 x 100 = 14.3%
Web traffic share
Ecommerce retailer KitchyThings Ltd., which sells kitchen countertop appliances such as mixers, juicers, and coffee makers in North America (US and Canada), had 40,000 visitors click onto its website in the fourth quarter. Ecommerce kitchen countertop appliance retailers in North America had 240,000 website visitors. KitchyThings’ web traffic market share in the fourth quarter was:
40,000 / 240,000 = 0.166 x 100 = 16.6%
How to increase or retain your market share
- Cut prices
- Innovate
- Build customer loyalty
- Promote your brand
- Increase website traffic
- Make acquisitions
New or emerging businesses can increase market share in several ways, and some of the same techniques can help established businesses retain or even achieve market share growth. They include:
Cut prices
A competitive price can boost your sales, both in terms of revenue and unit volume, particularly if customers see your product as the same quality as your competitors’. The trade-off for the increase in a company’s total sales, however, is lower per-unit revenue and narrower profit margins. The key is making sure your sales increase enough to compensate for this or your earnings might fall.
Innovate
Introducing innovative new products can attract new customers and increase satisfaction among existing customers. For example, imagine that a home insulation company develops a new material that is more energy efficient, attracting home builders and renovators. This result may be higher sales at the expense of less innovative competition.
Build customer loyalty
Satisfied customers tend to be loyal customers. They are more likely to buy again and to be receptive to your marketing pitches, such as promotional deals and upselling offers for premium products and services. For ecommerce businesses, focusing on customer satisfaction also means understanding your churn rate—customers who don’t return—and taking steps to reduce it, such as providing extra help for new customers and offering discounts or special offers to existing customers. Staying on top of market trends also is important for adapting to changing customer needs and tastes.
Promote your brand
Advertising your business and product can build brand recognition, making potential customers think of your product first. Becoming the preferred brand can lead to an increase in market share. Consistently good customer feedback and word-of-mouth referrals can contribute to your brand awareness.
Increase website traffic
Online businesses want to draw more eyeballs to their websites. Among ways to boost website traffic is to improve search engine optimization (SEO) with keywords and phrases that will lead online browsers to your website and boost your business’s ranking in users’ search results.
Make acquisitions
Sometimes, the easiest way to build or retain market share is to buy another business in your industry. By acquiring a rival, you get that business’s customers, and you reduce competition. Making an acquisition involves weighing these potential benefits against the initial cost and ongoing expense of financing the acquisition.
Calculating market share FAQ
What is the formula for calculating market share?
Typically, the market share calculation is your company’s sales of a specific product divided by total industry sales of the same product in the same time period. The market share formula also works for a company’s unit sales volume divided by total industry unit volume. For online businesses, the calculation may be the number of website clicks divided by total clicks for all online businesses selling the same product or service.
What is an example of market share?
Imagine a company whose US subscribers sign up to buy a case of wine four times a year. If the company’s revenue for the year was $200 million while the total US market for subscription-based online wine retailers was $800 million, the company’s market share is:
$200 million / $800 million = 0.25 x 100 = 25%
What’s a good market share?
No one figure determines whether a company’s market share is good. That said, one rule of thumb is sometimes used: Your business has a good market share if it’s equal to at least half of the market leader’s share (the market leader’s share, of course, is pretty good). For example, if your business has 30% of the market, and the market leader has 50%, you have a relative market share of 30/50—or a market share that’s equal to 60% of the market leader, which in this case is good.