If you own a business and sell products or services, there may come a time when you need to understand how to determine the percent of market share that your products or services make up when related to the total sales of related services or products in a market — local or larger. This can be done by calculating your market share as it relates to total units sold or total dollar volume.
Market Share Of Unit Sales
If you own a business that sells ABC widgets and would like to learn what your market share is for that product in the United States, you need to know the total sales for that product in the United States. With the total number of sales, you can calculate your market share. As an example, if 100,000 ABC widgets are sold in the United States each year, you would divide your sales of ABC widgets by that total number. Let’s say you sold 12,000 units last year. In this case, your market share would be (100,000/12,000 = 0.12) 12 percent.
Market Share Of Dollar Volume
To determine the market share of dollar volume for your product or service, you must know the total dollar volume generated by that service or product. If you own a pool cleaning service and know that $100,000 in sales are generated each year in the three cities where you provide the service, you would divide the dollar amount of your sales by $100,000. If you generated $18,000 in sales by offering your pool cleaning services in those three cities, you would have 18percent (100,000/18,000 = .18) market share of the service.
Understanding Market Share Is Important
By learning more about the market share in specific areas, you can gauge how well you are conducting business as it relates to competitors. In the previous example, you had a total market share of 18 percent for your pool cleaning business. You may be able to increase this number by looking at each individual city and the market share that your business holds. If you know the total amount of dollars generated in each individual city, you can see how your market share is per area.
City A – $30,000 total sales; Your sales in that city are $3000. This gives you 10 percent (30,000/3000 = 0.1) market share.
City B – $50,000 total sales; Your sales in that city are $10,000. This gives you 20 percent (50,000/10,000 = 0.2) market share.
City C – $20,000 total sales; Your sales in that city are $5000. This gives you 25 percent (20,000/5000 = 0.25) market share.
According to the data from the three cities, the market share for your services falls in a range between 10 percent and 25 percent. Knowing this number is important. By doing some research in each area, you can determine why there is a 15 percent market gap between two of the cities that you service. Armed with this knowledge, you may be able to pick up more market shares in City A.
As you can see, calculating market shares is a great way to determine how well your business is competing. You can use this number to evaluate ways that you can increase your presence in your industry.