Market share is a company’s percentage of an industry’s total sales. In other words, if you operate in a billion-dollar market and earn $100 million annually, you have a 1% market share.
However, it is not always about sales in the online world. For instance, in the case of Facebook (as singled out by the court), their primary service — social networking — is actually free. Thus, in addition to sales, you can consider active users, traffic, and other metrics when it comes to online businesses.
Whichever criterion you employ, it is critical to keep in mind that market share never remains constant. Because market share is fluid, it is typically discussed in terms of specific time periods — quarterly or annual statistics.
How is Market Share Calculated?
There are several widely used techniques for calculating market share:
- The traditional market share calculation is based on the industry’s total sales.
- The customer market share formula is customer-centric, so you have to know the total number of customers within your market.
- The formula for calculating relative market share is based on the market shares of the major players in your industry.
However, in the online world, sales and customers can easily be replaced by traffic, as the former can be difficult to quantify unless the market is saturated with publicly traded companies.
How to Analyze Market Share
Market share is merely a numerical representation of a company’s position. You must first analyze and apply this figure before you can generate an action plan from it.
While market share formulas can provide guidance on how to approach business assessment, a more detailed approach is necessary to obtain an accurate picture of your business’s performance; otherwise, you risk comparing your local pastry brand to the global pastry market, which would be misleading.
Consider the following:
Define your objective: Typically, market share is calculated country by country. By delving deeper into your target market, you can identify and compare regions where your potential customers reside.
Compare yourself to similar businesses: Select similar-sized businesses that share your audience demographics to assist you in accurately evaluating your market share and comprehending its impact.
Examine competitors’ market share: A 10% market share indicates market leadership in some markets; in others, it indicates mediocre performance. To conduct business assessments, you must adopt a comparative perspective and compare your market share to that of your competitors.
Identify opportunities and gaps: By examining the strategies of other market participants in the Custom Market Dynamics section of your Market Explorer report, you can identify opportunities and gaps. This enables you to benefit from the strategies of market leaders and determine whether they are replicable. When you notice significant increases, utilize tools such as Traffic Analytics, Organic Research, Advertising Research, and Social Media Tracker to assist you in fine-tuning your strategies.