How and Why: Market Share and Sizing
What is market sizing and share? Market share (or market percentage, held by your company), measures its revenue against market totals. Companies utilize this information to better understand their position in the market and identify competitive threats, adjusting accordingly. Before engaging in strategic sales planning, it is a best practice to complete this task at least once a year. The resulting information helps plan out moves needed to accomplish growth goals and absorb or take market share.
Here, we will discuss ways to calculate market share and size, along with some the best ways to use the information.
This focuses on the total market demand for a product or service. This particular style of size calculation is based on the maximum revenue potentially generated through the sale of existing product or services in a defined market. The ability to project niche market potential growth rate, creates valued calculation.
Base market analysis is required, start by identifying major players in your industry. Find the total number of companies serving that particular market and the revenue of each. The result is the sum of the combined companies' revenues,This is your total addressable market (size).
In order to calculate market share, take your company's revenue and divide by market size. Multiply by 100, resulting in market share. This represents the percentage of the market you currently hold. It is good practice to calculate your competitions market share as well.
It is important to note that when comparing market share, it is valuable to produce a separate calculation which is specific to the products and services currently offered, compared to the products your competitors offer. Often, a competitor has more revenue and may offer other products your company does not, and vice versa. This causes market shares to appear extremely skewed. By sizing the market from an exact point of view (perfect matches), calculate a market share with the resulting total. This requires estimations on the percent of a company’s revenue driven by the defined products. The result is a clearer picture of the market that you actually participate in. It is important to do both calculations in order to identify new sections of the market that you may want to grow. This creates a better understanding of your competition or your own competitive threats.
Why do the work?
So why are these two (four, if product specific sizing and share calculations are included) exercises so important? They identify far more than meets the eye, allowing informed decisions about realistic growth strategies and tactics. Here, we will discuss some of the ways market data supports your business decisions.
(For the purposes of this article, we will split capturing and acquiring market share.)
Capturing market share is actively taking market share from other companies. This is completed in several different ways. In any case, it is important to know who holds market share. Are you the biggest in the market? Are you somewhere in the middle? The best position for a company’s growth is in the middle to lower middle percentile of market share. This allows a company to capture market shares from current majority holders (bigger companies). This is accomplished through better marketing, product improvements, adding operations or services, changing pricing structures, or quality product maintenance.
Acquiring market share
Know the positions of all of your competitors, is a straightforward reason. If a financially, healthy company wants to grow their market share quickly, one of the fastest ways is acquiring other companies. If a company is ripe for acquisition, the first way to identify is through market share. Notice either a smaller market share or identify a shrink in the company. Acquiring companies can be a tricky task to accomplish, though they bring profound benefits. Absorbed companies bring cash-flow, market share, customers, staff, and assets. They may also be used to augment your product lines for a more complete offering. Market share is, of course, only the beginning, requiring a far more in-depth investigation, but it offers a great starting place for strategy discussions in your sales and marketing strategy meetings.
Market sizing and market share activities are valuable for companies serious about growing. It helps to illustrate the position and market health of a company. It also illustrates the opportunities or threats available or against an organization. If time is taken to collect the pertinent information and utilized strategically, there are more benefits than a company can realize.
If you have questions about capturing market share or conducting market sizing and share research, contact Nesbit Marketing: