A company’s total sales are a key indicator of its financial health and success in the industry. Having context for how a given company’s success compares to its competitors is also important. This comparison is reflected in a metric known as market share.
In this article, we explain what market share and relative market share are, three ways to calculate it,
Key takeaways:
- Market share–also known as revenue market share or market share by revenue–is the portion of an industry that is controlled by a single company.
- Calculate market share using total revenue through metrics like units sold or number of customers.
- Market share can be useful when comparing companies across the same industry.
What is market share?
Market share is the percent of total sales in a specific industry generated by a particular company and is a measurement of how much one company controls an entire industry. Market share is calculated by dividing the company’s total revenues by the total sales of the whole industry during a specific period of time. This indicator is used by data analysts and other professionals to assess the size, or presence, of a company within a given industry.
Market share formula
You can calculate your market share by finding your business’s total revenue for a specific period of time and dividing that number by your industry’s total revenue during the same period. Then, multiply this number by 100 to calculate your market share percentage.
Market share = (Business revenue for a fiscal period / Total industry revenue for same fiscal period) x 100
Example: Your company sells notebooks and planners and your total revenue for a fiscal quarter is $200,000. During that same fiscal period, total industry sales were $2,000,000.
Market share = ($200,000 / $2,000,000) x 100 = 10%
A large market share is typically an indicator of a successful business. Businesses with a large market share can offer set industry prices because competitors are looking to follow their lead. Simultaneously, businesses with a large market share may also be subject to anti-competition laws, which are government-imposed sales restrictions to prevent one company from monopolizing an industry.Related: How To Use the Total Revenue Formula To Grow Your Business
What is relative market share?
Relative market share is a related metric that helps compares your company’s performance to industry leaders. The calculation for relative market share shows the portion of the market you own in relation to your largest competitor. Companies can calculate their relative market share as a whole or for specific products, brands or product categories.
The formula for relative market share is:
Relative market share = (Market share of company / Market share of top competitor) x 100
If the percentage is low, it usually means there’s a significant difference in market share between the company and the industry leader. If the percentage is high, it often means the company is one of the leading organizations in the field.
Related: Sales vs. Business Development: What’s the Difference?
How to calculate market share
Calculating market share is a fairly straightforward process, regardless of industry type. You can calculate market share based on revenue, units sold or organic search traffic.
How to calculate market share by revenue
Follow these four steps to calculate market share for total revenue:
- Select a fiscal period.
- Calculate your company’s sales.
- Calculate the total market sales for your industry.
- Divide your company’s total sales by your industry’s overall sales and multiply the decimal by 100 to find the percentage.
1. Select a fiscal period
The first step to calculating a company’s market share is to identify the fiscal period you want to review. This could be a fiscal quarter, fiscal year or range of years.
Example: Suppose you want to calculate an ice cream company’s market share over one fiscal year. Related: Common Types of Fiscal Years
2. Calculate your company’s sales
The next step is to calculate the total sales for the company in question for the identified period. For larger companies with products spanning multiple industries, their market share would be calculated for each industry separately and not based on the company’s total sales. For example, a retail store that sells food, clothing and furniture would calculate its market share in the grocery industry based only on its food sales. They would calculate a separate market share value for clothing, furniture and so on.
Example: Let’s say that the ice cream company’s total revenue in 2021 was $500 million.
3. Calculate industry sales
After calculating total sales for an individual company, calculate total sales for the entire market. This information is publicly available in research reports and through industry associations. Also, if an industry is dominated by several large retailers with minimal small business sales, you could combine the sales for the major retailers to calculate total market sales.
Example: Suppose that the total sales for the entire ice cream market amounted to $7 billion in 2021.
4. Divide and multiply by 100
The final step is to divide the individual company’s total sales by the industry’s total sales. This calculation will produce a decimal number that can be converted to a percentage by multiplying it by 100.
Example: Using the formula above, we can calculate the ice cream company’s market share:
Market share = (Business revenue for a fiscal period / Total industry revenue for same fiscal period) x 100
Market share = ($500,000,000 / $7,000,000,000) x 100
Market share = 7.14%
Related: Calculating Sales Revenue (With Income Statement Example)
How to calculate market share based on number of units sold
In addition to calculating market share based on total revenue, companies often calculate market share based on the number of units sold. To calculate this variation of market share, follow these four steps:
- Select a fiscal period.
- Calculate your company’s total number of units sold.
- Calculate the total number of units sold by the industry as a whole.
- Divide your company’s total units sold by your industry’s total units sold and multiply the decimal by 100 to find the percentage.
Example: Let’s say you want to calculate the market share of an athletic shoe company based on the number of shoes it sold in 2020. Suppose the company sold 700 million pairs of shoes in 2020, and the total number of athletic shoes sold in 2020 was 2 billion.
Market share = (# of units sold for a fiscal period / Total industry units sold for same fiscal period) x 100
Market share = (700,000,000 / 2,000,000,000) x 100
Market share = 35%
Related: How To Find the Selling Price per Unit (With Examples)
How to calculate market share by organic search traffic
- Select a fiscal period.
- Calculate the total available clicks within a defined set of keywords based on total search volume and click-through rate
- Calculate your share of those clicks based on the CTR of your ranking position and the search volume for each term
- Divide your share of those clicks by the total available clicks and multiply the decimal by 100 to find the market share percentage.
Example: Suppose you want to find a makeup and skincare company’s Q1 market share for transactional searches of the keyword “skincare.” The total number of available clicks in Q1 for “skincare” search queries was 100 million, and your company’s share of the clicks for Q1 was 9.4 million. Market share = (Company’s # of clicks / Total available clicks for industry) x 100Market share = (9,400,000 / 100,000,000) x 100 Market share = 9.4%
Related: How To Conduct a Competitor Product Analysis (With Example)
Market share examples
Here are examples of market share calculations for revenue vs. units sold for an auto industry company in the fiscal year 2022:
Market share example for total revenue
Grayson Auto is a domestic company that manufactures non-luxury vehicles. The company earned $60 billion in revenue in 2022. The auto industry as a whole had $900 billion in revenue.
Market share = ($60 billion / $900 billion) x 100 = 6.7%
Market share example for units sold
In 2022, Grayson Auto sold 4 million vehicles. The worldwide auto industry as a whole sold 60 million vehicles.
Market share = (4 million / 60 million) x 100 = 6.7%
Related: What Is Market Size and How Do You Determine It?
How to increase your market share
Here are a few strategies you can use to increase your company’s market share:
- Lower prices: Pricing your product below the market could provide a competitive advantage, allowing you to increase sales by providing a more appealing deal than similar options. Lower prices often attract new customers, which is a driving factor for generating revenue.
- Innovate new products and features: Creating a new product or new features for the product you sell can attract new customers. New customers make new purchases and contribute to higher profit margins and larger contributions to overall industry revenue.
- Build customer loyalty: Customer loyalty measures a customer’s satisfaction with a brand. Loyal customers are often likely to make repeat purchases or pay more for products or services because they’ve had positive experiences with a business in the past.
- Increase brand awareness: Branding awareness and marketing play a large role in capturing market share. It’s important to get your name out there so customers know who you are. Becoming a household name and the preferred brand in an industry will help increase your market share.
- Grow organic search market share through search engine optimization (SEO): In terms of marketing return on investment (ROI), organic search can be one of the most effective ways to acquire customers.
Why is market share important?
Market share is a key indicator of a company’s competitiveness in its industry. The more market share a company has, the more likely it’ll have a higher profit margin. A high market share also tends to indicate that a company is innovative, appealing and marketable because consumers prefer its products over products made by other companies. If a company has lower market shares, it can indicate that it needs to focus on marketing to raise brand awareness, customer acquisition and other strategies to increase revenue. Higher market shares can indicate that your current business strategy is effective, and you could focus on operating on a larger scale, product innovation and customer retention.
Frequently asked questions
How do I compare my market share with competitors’?
Here are some tips on how to compare your company’s market share with your competitors’ market shares.
- If you’re a publicly traded company in the U.S., you can use the United States Securities and Exchange Commission’s tool, EDGAR. EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, is the main system that companies use to submit financial documents and filings.
- How your competitors perform in Google is another indicator to monitor. You can create a Search Console account to view and understand your company’s search traffic on Google.
Is it good to have a high or low market share?
It’s generally better if you have a high market share, as it indicates that you’re well-established in a particular industry. Investors who want to pursue riskier projects in younger companies or start-ups may seek out companies with low market share.
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