Economics/Business

How to calculate market share/Why is it important/How to increase

The market share is one of the most important metrics that companies use to measure the effectiveness of any effort to generate income, such as marketing campaigns or brand initiatives. How to calculate market share?

The reason is simple: market share shows you how you are doing compared to your competition, allows you to quantify the impact of your strategies and learn about your performance and plan accordingly.

Let’s learn more about this concept and how it affects our business.

What is market share?

Market share refers to the company’s percentage of total sales in the market or sector in which it operates. In other words, it refers to the amount of sales of the company compared to that of the industry as a whole. 

In general, it is a metric that indicates the size of the company in a sector or market.

When participation is huge, it means that the company is experiencing higher sales thanks to the expansion of its consumer base, compared to its competitors. How to calculate market share?

How is market share calculated? 

The data for the calculation of participation are usually extracted from some independent sources, such as:

  • Trade groups
  • Regulatory bodies
  • From the companies themselves

In order to calculate the market share of a company, you must first determine the period you want to evaluate. The period, in this case, can be one year, one fiscal quarter, or even several years. 

Once the duration of the period has been determined, the second will be to calculate the total sales of the company during the identified period. The next step will be to determine the company’s total industry sales. 

Example Suppose that company A sold 20 million soft drinks in the last fiscal year. The number of soft drinks sold in the country amounted to 40 million dollars. In this case, the market share of soft drinks of company A in the country would be 50%.

Why is it important to know the market share?

Although market share cannot provide a firm with a definitive profit figure, it does provide important insights into the firm’s growth, net profit, and revenue. How to calculate market share? 

Keep in mind that when a company is large, it means that it has the capacity to serve a greater number of customers with efficiency in terms of costs. In other words, a large market share allows a company to sell at a significant discount after the large orders it receives from customers. 

By creating these types of strategies, high net profit margins are obtained, since discounted sales allow the company to win customers from its competitors, attract new customers and, at the same time, keep existing customers.

How to increase my market share?

Increasing market share allows companies to increase their operations and their profits. Companies increase their market share through the following means:

  • Advertising your products or services
  • Introducing a new product to the market
  • Lowering the price of the product or service
  • Expanding the business to other demographic groups
  • Building customer loyalty by strengthening the relationship between them
  • Ensuring customer satisfaction
  • Acquiring a competitor. This ensures you control a new customer base, as well as reducing the number of competitors who also aspire to the same participation to just one. How to calculate market share?

Keep in mind that when you have a large market share in a sector, this will allow you to sell your products with little or no competition. However, there are antitrust laws enacted by government agencies to ensure that companies do not expand their market share too much to the point of eliminating competition. 

It is important to note that when there is no competition in a given market, the prices of the products or services will always be expensive. This is because the prices in that market are determined by one entity, which will always be higher because there are no competitors that offer a different one.

conclusion

Market share is one of the most important metrics in business, it allows calculating the sales of a brand or product in relation to the global size of a market. 

To correctly calculate the market share of a company or a competitor, it is essential to calculate reasonably similar attributes to achieve an accurate measurement of market share.

Market share is an indicator of how a brand is doing relative to the competition, including an assessment of customer value and proposition and its influence on sales, advertising, and distribution. How to calculate market share?

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