Market share can be defined as the percentage contribution of a company in the total business carried out in a particular industry. The easiest way to calculate the market share of a company is to divide the company’s sales over a particular period of time with the total sales that have happened in the industry over the same period of time. Having an idea about its market share helps a company understand its current standing in the industry in comparison to its competitors. Increase in the market share lets a company to accomplish higher levels of operations and enhance profitability; on the other hand, a decreasing market share may lead clients and investors to believe that there is a problem with the company.
How does knowing market share help business
Having knowledge about its market share is of utmost importance to a business and can be helpful in many ways. Lets take a look at some of the ways in which knowing about market share can help a business.
It provides a clearer picture about whether a business is performing well or not.
It helps understand the competitiveness of the business in the industry.
It can assist the management of the business to take improved decisions that can facilitate growth and profitability.
Knowing the current market share enables the business to chalk out strategies in order to increase the market share.
Increased market share allows the business to get goods and raw materials at cheaper rates, which in turn may boost sales.
A high market share also helps in attracting a large number of investors as they see the business as a worthwhile investment.
Methods to know market share
There is no definite method that is used in order to know the market share of a particular company. The calculation of market share involves three important steps. The first step is to calculate the total revenue of the company. This is done by subtracting the debts of the company with its total income over a period of time. The next step is determining the total sales that the entire market is achieving. This can be found out from the records of trade associations or with the help of a certified research firm. The final step is to divide the total revenue of the company with the total sales achieved by the entire industry. This division provides you the market share of your company.
Knowledge of the market share can prove to be beneficial for a business as it not only provides information about the companys current standing in the market but also helps obtain useful inputs on how to increase the market share.