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Market Share in a Business Plan
… so our market share should be …
To illustrate suppose the served available market (SAM) is 4.5 million and we expect to obtain 1% of this market. In this case the serviceable obtainable market (SOM) is calculated as follows.
The SOM is not normally calculated using a bottom up approach. However, it is a useful exercise to perform the calculation to see whether the business is able to operate at a level indicated by the estimated market share.
To illustrate suppose we have market size estimates for SAM of 4.5 million in year one rising to 7.59 million in year five. Additionally based on available resources (staff, equipment, funding etc.), the business estimates that it can deal with 300 customers in year one and 1600 customers in year five. Assuming an average value per customer of 150, we can calculate a bottom up market share as follows.
Using its available resources the business can support the market share calculated above. Consequently if the top down estimate of SOM is much larger than this the business need to rethink its plan to ensure compatibility with resources available.
Market Share Presentation
The investor will view the SOM as the short term target for the business. They will be looking for this to be achieved without too many problems to show that the business idea has potential. If the business can achieve the SOM then with further investment, it should be able to penetrate the SAM even further.
This is part of the financial projections and Contents of a Business Plan Guide . The guide is a series of posts on what each section of a simple business plan should include. The next post in this series sets out details of the marketing strategy which the business intends to use to win its share of the market.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
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What Is Market Share & How Do You Calculate It?
Published: December 07, 2022
In the marketing industry, you've likely heard the term "market share" from time to time, but what does it mean? Why is it necessary, and how is it calculated?
As marketers, it's important to understand market share so you know how your company ranks against competitors and can develop new marketing strategies to reach more potential customers. In this post, we’ll outline what market share is, how to calculate it, give real-life examples, and explain how you can increase yours.
What is market share?
Market share formula.
Relative Market Share
Relative Market Share Formula
Market share examples.
How to Expand Your Market Share
Understand Your Market Share to Increase Business Success
Market share is the percentage of an industry's sales that a particular company owns. Essentially, it is the share of your business's total industry revenue from selling your products and services. Businesses with larger market shares are industry leaders and competition for smaller companies.
Suppose consumers buy 100 T-shirts, and 70 are from Company A, 25 from Company B, and 5 from Company C. In that case, Company A owns a market share of 70% and is the leading industry competitor .
Market share is typically calculated for a specific period, like yearly or quarterly sales, and is sometimes separated by region.
How to Calculate Market Share
Find your business’s total sales revenue for your preferred period and divide that number by your industry’s total revenue during the same period. Once you have this result, multiply the number by 100 to generate your market share percentage.
Calculating your market share will give you an overall understanding of your position in the industry, but it’s also helpful to understand how you measure up to your direct competitors. By understanding the basics of the stock market , you can easily understand how each company and their share make up the entire industry.
Relative Market Share
Relative market share compares your performance to industry leaders.
Rather than using total industry revenue, you’re dividing your market share by your top competitor's market share, multiplying the result by 100. The result will show you the portion of the market you own in relation to your most significant competitor. The image below shows the relative market share formula.
It may be easier to understand market share with real-life examples, so we’ll go over some below for businesses you may already be familiar with.
Nike Market Share
Nike is part of the athletic footwear and apparel industry, selling various sports equipment, casual shoes, and accessories.
Nike’s global market share in sportswear is estimated to be 43.7% . The brand is an industry competitor for Adidas and Under Armour.
Tesla Market Share
Tesla is part of the automotive industry and produces electric vehicles (EVs). Within the U.S. EV industry, Tesla holds an over 70% market share.
It's essential to recognize that the market for EVs worldwide is significantly smaller than standard vehicles. EV’s market share in the automobile industry is 2.8%, and Tesla’s is .8% . These differences are significant, so it is vital to analyze relative market share to compare your business to your direct competitors rather than just the market as a whole.
Spotify is a music-streaming platform and has the highest music-streaming market share with 31% of the market.
The second-highest market share belongs to Apple Music (15%), followed by Amazon Music (13), Tencent (13%), and YouTube (8%).
E-commerce company Amazon has a U.S. e-commerce market share of 37.8% and is the leading online retailer in the country. Second place belongs to Walmart with 6.3%, and third place goes to Apple with 3.9%.
Most recent statistics show Target is the largest department store retailer in the U.S. with a 38% market share. Walmart and Macy's both rank second with 13%.
Chew is an online pet product and food retailer with a market share of 40% in the U.S. The company plans to expand into the global market in 2024 and is expected to gain a 20% market share outside of the U.S. by 2030.
Google Market Share
Google has a market share of 92.37% , making it the most popular search engine in the world. It dominates the competition, as the second-largest industry leader is Bing with a market share of just 3.57%.
Once you’ve calculated your market share and understand how you relate to your industry competitors, you can begin strategizing how to increase your overall revenue.
How To Expand Your Market Share
Below are a few strategies your company can use to expand your market share .
1. Lower prices.
A great way to compete in your industry is to offer low prices. This is the low-hanging fruit of expanding your market share because consumers typically look for lower-cost products.
However, it's also important to note that the cheap option isn't right for every brand. You want to ensure that you’re pricing products appropriately to provide value to customers but not lose out on revenue opportunities to beat the competition.
2. Innovate new products and features.
Companies innovating and bringing new technology to the table often see their market share increase.
New products and features attract new customers, also known as acquisition , which is a driving factor for generating revenue. New customers make new purchases and, in turn, contribute to higher profit margins and larger contributions to overall industry revenue. More significant contributions directly translate to increased market share.
3. Delight your customers.
One of the best ways to grow your market share is to work on existing customer relationships.
You can inspire customer loyalty by delighting current customers by providing exceptional experiences and customer loyalty. Loyal customers are more likely to make repeat purchases, which increases your business revenue and contribution to total industry revenue. As mentioned above, higher revenue contributions equal a higher market share percentage.
4. Increase brand awareness.
Branding awareness and national marketing play a significant role in capturing market share. Getting your name out there is important, so customers know who you are. Becoming a household name and the preferred brand in an industry will help increase your market share.
Generally, larger companies have the highest market share because they can provide products and services more efficiently and effectively.
But why is this so important? Below, let's figure out what impact market share can have on your company.
Why is market share important?
Calculating market share lets companies know how competitive they are in their industry. Additionally, the more market share a company has, the more innovative, appealing, and marketable they are.
Market share is more important in industries that are based on discretionary income. Market share doesn't always have a significant impact in constantly growing industries. However, it's important to remember that a company can have too much market share — also known as a monopoly.
For example, with growing industries with a growing market share, companies can still increase their sales even if they lose market share.
On the other hand, with discretionary income industries, such as travel or non-essential goods like entertainment and leisure, the economy can significantly impact market share. Sales and margins can vary depending on the time of year, meaning that competition is always at an all-time high.
Higher competition often leads to risky strategies. For instance, companies might be willing to lose money temporarily to force competitors out of the industry and gain more market share. Once they have more market share, they can raise prices.
Lower market shares can let you know that you need to focus on customer acquisition, marketing to raise brand awareness, and overall strategies to increase revenue. Higher percentages indicate that your current plan is adequate and that you should focus on customer retention and product innovation.
Whether your company is well-established or just starting, it’s important to understand your industry standing as it will help you meet business objectives and achieve desired success.
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How to Write a Market Analysis for a Business Plan
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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.
Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.
Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.
How to conduct a market analysis: A step-by-step guide
In your market analysis, you can expect to cover the following:
Barriers to entry
Let’s dive into an in-depth look into each section:
Step 1: Define your objective
Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?
If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .
The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.
Step 2: Provide an industry outlook
An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.
Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:
Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?
Product life cycle
If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:
Research and development
How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.
Step 3: Determine your target market
This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?
Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.
With that in mind, your target market section should include the following points:
This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:
Create a customer persona
Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.
What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?
Research and supporting material
Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:
Target group surveys
You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.
Step 4: Calculate market value
You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.
A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.
A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:
Where products are sold
Who your competition is
The price per unit
How many consumers you expect to reach
The average amount a customer would buy over time
While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.
Step 5: Get to know your competition
Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?
There are two types of competitors that you should be aware of: direct competitors and indirect competitors.
Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.
An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.
Also, here are some questions you want to answer when writing this section of your market analysis:
What are your competitor’s strengths?
What are your competitor’s weaknesses?
How can you cover your competitor’s weaknesses in your own business?
How can you solve the same problems better or differently than your competitors?
How can you leverage technology to better serve your customers?
How big of a threat are your competitors if you open your business?
Step 6: Identify your barriers
Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:
Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?
Branding: You need to establish your brand identity to stand out in a saturated market.
Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)
Location: You need to secure a prime location if you’re opening a physical store.
Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).
Step 7: Know the regulations
When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):
Employment and labor laws
If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.
Tips when writing your market analysis
We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:
Use visual aids
Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.
Include a summary
If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.
Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.
Get to the point
It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.
Revisit your market analysis regularly
Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.
Why should you write a market analysis?
Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:
1. Learn how to analyze the market need
Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.
2. Learn about your customers
The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.
3. Get approved for a business loan
Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.
A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.
4. Beat the competition
Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.
There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.
The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
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What Is Market Share?
Understanding market share, benefits of market share, market share impact.
- How To Increase Market Share
Market Share Example
- Market Share FAQs
The Bottom Line
- Business Essentials
Market Share: What It Is and the Formula for Calculating It
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
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Market share is the percent of total sales in an industry generated by a particular company. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors. The market leader in an industry is the company with the largest market share.
- Market share represents the percentage of an industry, or a market's total sales, that is earned by a particular company over a specified time period.
- Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period.
- This metric is used to give a general idea of the size of a company in relation to its market and its competitors.
- A market leader is a company in an industry that has the highest market share and generally wields the most influence.
- Ways to increase market share include implementing new technologies, generating customer loyalty, and acquiring competitors.
Investopedia / Candra Huff
A company's market share is its portion of total sales in relation to the market or industry in which it operates. To calculate a company's market share, first determine a period you want to examine. It can be a fiscal quarter, year, or multiple years .
Next, calculate the company's total sales over that period. Then, find out the total sales of the company's industry. Finally, divide the company's total revenues by its industry's total sales. For example, if a company sold $100 million in tractors last year domestically, and the total amount of tractors sold in the U.S. was $200 million, the company's U.S. market share for tractors would be 50%.
The calculation for market share is usually done for specific countries or regions, e.g. companies will report their North American or Canadian market share. Investors can obtain market share data from various independent sources, such as trade groups and regulatory bodies, and often from the company itself; however, some industries are harder to measure with accuracy than others.
Formula for Market Share
Market Share = Total Company Sales / Total Industry Sales
Investors and analysts monitor increases and decreases in market share carefully as this can be a sign of the relative competitiveness of the company's products or services. As the total market for a product or service grows, a company that is maintaining its market share is growing revenues at the same rate as the total market. A company that is growing its market share will be growing its revenues faster than its competitors.
Gains or losses in market share can have a significant impact on a company's stock performance , depending on industry conditions.
Market share increases can allow a company to achieve greater scale with its operations and improve profitability. A company can try to expand its share of the market, either by lowering prices, using advertising, or introducing new or different products. In addition, it can also grow the size of its market share by appealing to other audiences or demographics .
Changes in market share have a larger impact on the performance of companies in mature or cyclical industries where there is low growth. In contrast, changes in market share have less impact on companies in growth industries . In these industries, the total pie is growing, so companies can still be growing sales even if they are losing market share. For companies in this situation, the stock performance is more affected by sales growth and margins than other factors.
In cyclical industries , competition for market share is brutal. Economic factors play a larger role in the variance of sales, earnings, and margins, more than other factors. Margins tend to be low and operations run at maximum efficiency due to competition. Since sales come at the expense of other companies, they invest heavily in marketing efforts or even loss leaders to attract sales.
In these industries, companies may be willing to lose money on products temporarily to force competitors to give up or declare bankruptcy . Once they gain greater market share and competitors are ousted, they attempt to raise prices. This strategy can work, or it can backfire, compounding their losses; however, this is the reason why many industries are dominated by a few big players, such as discount wholesale retail with stores including Sam's Club, BJ's Wholesale Club, and Costco.
How Can Companies Increase Market Share?
A company can increase its market share by offering its customers innovative technology, strengthening customer loyalty, hiring talented employees, and acquiring competitors.
Innovation is one method by which a company may increase market share . When a firm brings to market a new technology its competitors have yet to offer, consumers wishing to own the technology buy it from that company, even if they previously did business with a competitor. Many of those consumers become loyal customers, which adds to the company's market share and decreases market share for the company from which they switched.
By strengthening customer relationships, companies protect their existing market share by preventing current customers from jumping ship when a competitor rolls out a hot new offer. Better still, companies can grow market share using the same simple tactic, as satisfied customers frequently speak of their positive experience to friends and relatives who then become new customers. Gaining market share via word of mouth increases a company's revenues without concomitant increases in marketing expenses.
Companies with the highest market share in their industries almost invariably have the most skilled and dedicated employees. Bringing the best employees on board reduces expenses related to turnover and training, and enables companies to devote more resources to focus on their core competencies . Offering competitive salaries and benefits is one proven way to attract the best employees; however, employees in the 21st century also seek intangible benefits such as flexible schedules and casual work environments.
Lastly, one of the surest methods to increase market share is acquiring a competitor . By doing so, a company accomplishes two things. It taps into the newly acquired firm's existing customer base, and it reduces the number of firms fighting for a slice of the same pie by one. Shrewd executives, whether in charge of small businesses or large corporations, always have their eye out for a good acquisition deal when their companies are in a growth model.
All multinational corporations measure success based on the market share of specific markets. China has been an important market for companies, as it is still a fast-growing market for many products. Apple Inc., for example, uses its market share numbers in China as a key performance indicator for the growth of its business.
Apple's market share for China's smartphone market was tied for second place in Q4 2020 with Vivo and Oppo at 17%. At the time, 29% of China's mobile phone market was made up of many other brands. Over the course of Q1 to Q3, Apple saw its market share in China drop to 12%, losing out to Vivo and Oppo. In Q4 2021, Apple experienced a bounce back to 22%. In Q1 2022 it remained at 18%.
Market share shows the size of a company, a useful metric in illustrating a company’s dominance and competitiveness in a given field. Market share is calculated as the percentage of company sales compared to the total share of sales in its respective industry over a time period. A company’s market share can influence its operations significantly, namely, its share performance, scalability, and prices that it can offer for its product or services.
Why Is Market Share Important?
Simply put, market share is a key indicator of a company’s competitiveness. When a company increases its market share, this can improve its profitability. This is because as companies increase in size, they too can scale, therefore offering lower prices and limiting their competitors' growth .
In some cases, companies may go so far as operating at a loss in some divisions in order to push out the competitors or force them into bankruptcy. After this point, the company may increase its market share, and further increase prices. In financial markets, market share can greatly affect stock prices, especially in cyclical industries when margins are narrow and competition is fierce. Any marked difference in market share may trigger weakness or strength in investor sentiment.
What Strategies Are Used to Gain Market Share?
To gain greater market share, a company may apply one of many strategies. First, it may introduce new technology to attract customers that may have otherwise purchased from their competitor. Second, nurturing customer loyalty is a tactic that can result in both a solid existing customer base and expansion through word of mouth. Third, hiring talented employees prevents costly employee turnover expenses, allowing the company to instead prioritize its core competencies. Finally, with an acquisition, a company can both reduce the number of competitors and acquire their base of customers.
How Do You Measure Market Share?
To determine a company's market share, you take the total sales of a company and divide it by its industry's total sales over a given period. For example, if a company sold $2 million worth of dishwashing liquid and the industry's total sales were $15 million, the company would have a market share of 2/15 = 13.3%
What Is a Low Market Share?
A low market share is considered to be a market share that is less than half of the market share of the industry leader. So if the industry leader has a market share of 40% and another company has a market share of 10%, that company would be considered to have a low market share as 10% is less than 20% (half of 40%).
Market share is the percent of total industry sales that a company has. The higher the market share, the more sales a company has than its competitors in their given industry. Market share is an indicator of how large a company is and the amount of influence it has in its industry. It can also be an indicator of growth and success.
Companies generally seek to increase their market share. Ways to do this are by implementing new technologies, delivering a higher quality product, implementing good marketing, acquiring competitors, and generating customer loyalty.
Counterpoint. " China Smartphone Market Share: By Quarter ."
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How to Write the Market Analysis Section of a Business Plan
Written by Dave Lavinsky
What is a Market Analysis?
Sometimes referred to as the industry analysis, this section of your business plan outlines the economic environment, political, social, and technological factors in your particular industry. A market analysis, which includes insights on how to write a business plan effectively, is an important part of your business plan. It answers the crucial question, “Is there a good reason for someone to invest in this business?”
It provides an industry overview of historical performance, both globally and domestically. The industry information provided will be used to help determine if you are entering a growing or shrinking market or one that is simply not growing as fast as other industries.
This section must convince investors that not only can you run a profitable company, but that it will be easy to do so because there are plenty of customers in your target market.
Download our Ultimate Business Plan Template here
What Should a Market Analysis Include?
You’ll want to address these issues in your market analysis:
- Size of Industry – How big is the overall industry?
- Projected Growth Rate of Industry – Is the industry growing or shrinking? How fast?
- Target Market – Who are you targeting with this product or service?
- Competition – How many businesses are currently in the same industry?
Learn how to write the full market analysis below.
How to Write a Market Analysis
Here’s how to write the market analysis section of a business plan.
- Describe each industry that you are competing in or will be targeting.
- Identify direct competition, but don’t forget about indirect competition – this may include companies selling different products to the same potential customer segments.
- Highlight strengths and weaknesses for both direct and indirect competitors, along with how your company stacks up against them based on what makes your company uniquely positioned to succeed.
- Include specific data, statistics, graphs, or charts if possible to make the market analysis more convincing to investors or lenders.
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In your industry overview, you will define the market in which you are competing (e.g., restaurant, medical devices, etc.).
You will then detail the sub-segment or niche of that market if applicable (e.g., within restaurants there are fast food restaurants, fine dining, etc.).
Next, you will describe the key characteristics of your industry. For example, discuss how big the market is in terms of units and revenues. Let the reader know if the market is growing or declining (and at what rate), and what key industry trends are facing your market.
Use third-party market research as much as possible to validate the discussion of your industry.
Here is a list of additional items you may analyze for a complete industry overview:
- An overview of the current state of the industry . How big is it, how much does it produce or sell? What are its key differentiators from competitors? What is its target customer base like – demographic information and psychographics? How has the industry performed over time (global, domestic)?
- Analyze the macro-economic factors impacting your industry . This includes items such as economic growth opportunities, inflation, exchange rates, interest rates, labor market trends, and technological improvements. You want to make sure that all of these are trending in a positive direction for you while also being realistic about them. For example, if the economy is in shambles you might want to wait before entering the particular market.
- Analyze the political factors impacting your industry . This is an often-overlooked section of any business plan, but it can be important depending on what type of company you are starting. If you’re in a highly regulated industry (such as medical devices), this is something that you’ll want to include.
- Analyze the social factors impacting your industry . This includes analyzing society’s interest in your product or service, historical trends in buying patterns in your industry, and any effects on the industry due to changes in culture. For example, if there is a growing counter-culture trend against big oil companies you might want to position yourself differently than a company in this industry.
- Analyze the technological factors impacting your industry . This includes analyzing new technologies being developed in software, hardware, or applications that can be used to improve your product or service. It also includes emerging consumer trends and will be highly dependent on your business type. In a technology-related venture, you would analyze how these changes are impacting consumers. For an educational-related venture, you would analyze how these changes are impacting students, teachers, and/or administrators.
For each of these items, you want to provide some detail about them including their current state as well as what external factors have played a role in the recent past. You can also include many other important factors if they apply to your business including demographic trends, legal issues, environmental concerns, and sustainability issues.
When you are done analyzing all of these factors, wrap it up by summing them up in a statement that includes your view on the future of the industry. This should be positive to attract investors, potential customers, and partners.
If you’re having trouble thinking about all of these factors then it might be helpful to first develop a SWOT analysis for your business.
Once you have an understanding of the market, you’ll need to think about how you will position yourself within that potential market.
Picking Your Niche
You want to think about how large your market is for this venture. You also want to consider whether you’d like to pick a niche within the overall industry or launch yourself into the mainstream.
If you have an innovative product it can be easier to enter the mainstream market – but at the same time, you might face some additional competition if there are similar products available.
You can choose to specialize in a niche market where you’ll face less competition – but might be able to sell your services at a higher price point (this could make it easier for you to get potential customers).
Of course, if your product or service is unique then there should be no competition. But, what happens if it isn’t unique? Will you be able to differentiate yourself enough to create a competitive advantage or edge?
If you are planning on entering the mainstream market, think about whether there are different sub-niches within your specific market. For example, within the technology industry, you can choose to specialize in laptops or smartphones or tablets, or other categories. While it will be more difficult to be unique in a mainstream market, you will still be able to focus on one type or category of products.
How Will You Stand Out?
Many companies are able to stand out – whether by offering a product that is unique or by marketing their products in a way that consumers notice. For example, Steve Jobs was able to take a business idea like the iPhone and make it into something that people talked about (while competitors struggled to play catch up).
You want your venture to stand out – whether with an innovative product or service or through marketing strategies. This might include a unique brand, name, or logo. It might also include packaging that stands out from competitors.
Write down how you will achieve this goal of standing out in the marketplace. If it’s a product, then what features do you have that other products don’t? If it’s a service, then what is it about this service that will make people want to use your company rather than your competition?
You also need to think about marketing. How are you going to promote yourself or sell your product or service? You’ll need a marketing plan for this – which might include writing copy, creating an advertisement, setting up a website, and several other activities. This should include a description of each of these strategies.
If you’re struggling with the details of any of these sections, it might be helpful to research what other companies in your market are doing and how they’ve been successful. You can use this business information to inform your own strategies and plans.
Relevant Market Size & Competition
In the second stage of your analysis, you must determine the size and competition in your specific market.
Target Market Section
Your company’s relevant market size is the amount of money it could make each year if it owned a complete market share.
To begin, estimate how many consumers you expect to be interested in purchasing your products or services each year.
To generate a more precise estimate, enter the monetary amount these potential customers may be ready to spend on your goods or services each year.
The size of your market is the product of these two figures. Calculate this market value here so that your readers can see how big your market opportunity is (particularly if you are seeking debt or equity funding).
You’ll also want to include an analysis of your market conditions. Is this a growing or declining market? How fast is it growing (or declining)? What are the general trends in the market? How has your market shifted over time?
Include all of this information in your own business plan to give your readers a clear understanding of the market landscape you’re competing in.
Next, you’ll need to create a comprehensive list of the competitors in your market. This competitive analysis includes:
- Direct Competitors – Companies that offer a similar product or service
- Indirect Competitors – Companies that sell products or services that are complementary to yours but not directly related
To show how large each competitor is, you can use metrics such as revenue, employees, number of locations, etc. If you have limited information about the company on hand then you may want to do some additional research or contact them directly for more information. You should also include their website so readers can learn more if they desire (along with social media profiles).
Once you complete this list, take a step back and try to determine how much market share each competitor has. You can use different methods to do this such as market research, surveys, or conduct focus groups or interviews with target customers.
You should also take into account the barriers to entry that exist in your market. What would it take for a new company to enter the market and start competing with you? This could be anything from capital requirements to licensing and permits.
When you have all of this information, you’ll want to create a table like the one below:
Once you have this data, you can start developing strategies to compete with the other companies which will be used again later to help you develop your marketing strategy and plan.
Writing a Market Analysis Tips
- Include an explanation of how you determined the size of the market and how much share competitors have.
- Include tables like the one above that show competitor size, barriers to entry, etc.
- Decide where you’re going to place this section in your business plan – before or after your SWOT analysis. You can use other sections as well such as your company summary or product/service description. Make sure you consider which information should come first for the reader to make the most sense.
- Brainstorm how you’re going to stand out in this competitive market.
Formatting the Market Analysis Section of Your Business Plan
Now that you understand the different components of the market analysis, let’s take a look at how you should structure this section in your business plan.
Your market analysis should be divided into two sections: the industry overview and market size & competition.
Each section should include detailed information about the topic and supporting evidence to back up your claims.
You’ll also want to make sure that all of your data is up-to-date. Be sure to include the date of the analysis in your business plan so readers know when it was conducted and if there have been any major changes since then.
In addition, you should also provide a short summary of what this section covers at the beginning of each paragraph or page. You can do this by using a title such as “Industry Overview” or another descriptive phrase that is easy to follow.
As with all sections in a business plan, make sure your market analysis is concise and includes only the most relevant information to keep your audience engaged until they reach your conclusion.
A strong market analysis can give your company a competitive edge over other businesses in its industry, which is why it’s essential to include this section in your business plan. By providing detailed information about the market you’re competing in, you can show your readers that you understand the industry and know how to capitalize on current and future trends.
Business Plan Market Analysis Examples
The following are examples of how to write the market analysis section of a business plan:
Business Plan Market Analysis Example #1 – Hosmer Sunglasses, a sunglasses manufacturer based in California
According to the Sunglass Association of America, the retail sales volume of Plano (non-prescription) sunglasses, clip-on sunglasses, and children’s sunglasses (hereinafter collectively referred to as “Sunwear”) totaled $2.9 billion last year. Premium-priced sunglasses are driving the Plano Sunwear market. Plano sunglasses priced at $100 or more accounted for more than 49% of all Sunwear sales among independent retail locations last year.
The Sunglass Association of America has projected that the dollar volume for retail sales of Plano Sunwear will grow 1.7% next year. Plano sunglass vendors are also bullish about sales in this year and beyond as a result of the growth of technology, particularly the growth of laser surgery and e-commerce.
Business Plan Market Analysis Example #2 – Nailed It!, a family-owned restaurant in Omaha, NE
According to the Nebraska Restaurant Association, last year total restaurant sales in Nebraska grew by 4.3%, reaching a record high of $2.8 billion. Sales at full-service restaurants were particularly strong, growing 7% over 2012 figures. This steady increase is being driven by population growth throughout the state. The Average Annual Growth Rate (AGR) since 2009 is 2.89%.
This fast growth has also encouraged the opening of new restaurants, with 3,035 operating statewide as of this year. The restaurant industry employs more than 41,000 workers in Nebraska and contributes nearly $3 billion to the state economy every year.
Nebraska’s population continues to increase – reaching 1.9 million in 2012, a 1.5% growth rate. In addition to population, the state has experienced record low unemployment every year since 2009 – with an average of 4.7% in 2013 and 2014.
Business Plan Market Analysis Example #3 – American Insurance Company (AIC), a chain of insurance agencies in Maine
American Insurance Company (AIC) offers high-quality insurance at low prices through its chain of retail outlets in the state of Maine. Since its inception, AIC has created an extensive network of agents and brokers across the country with expanding online, call center and retail business operations.
AIC is entering a market that will more than double in size over the next 50 years according to some industry forecasts. The insurance industry is enjoying low inflation rates, steady income growth, and improving standards of living for most Americans during what has been a difficult period for much of American business. This makes this a good time to enter the insurance industry as it enjoys higher margins because customers are purchasing more coverage due to increased costs from medical care and higher liability claims.
American Insurance Company provides affordable homeowners, auto, and business insurance through high-quality fulfillment centers across America that have earned a reputation for top-notch customer service.
AIC will face significant competition from both direct and indirect competitors. The indirect competition will come from a variety of businesses, including banks, other insurance companies, and online retailers. The direct competition will come from other well-funded start-ups as well as incumbents in the industry. AIC’s competitive advantages include its low prices, high quality, and excellent customer service.
AIC plans to grow at a rate that is above average for the industry as a whole. The company has identified a market that is expected to grow by more than 100% in the next decade. This growth is due to several factors: the increase in the number of two-income households, the aging population, and the impending retirement of many baby boomers will lead to an increase in the number of people who are purchasing insurance.
AIC projects revenues of $20M in year one, which is equivalent to 100% growth over the previous year. AIC forecasts revenue growth of 40%-60% each year on average for 10 years. After that, revenue growth is expected to slow down significantly due to market saturation.
The following table illustrates these projections:
Direct Competition: P&C Insurance Market Leaders
Indirect Competition: Banks, Other Insurance Companies, Retailers
Market Analysis Conclusion
When writing the market analysis section, it is important to provide specific data and forecasts about the industry that your company operates in. This information can help make your business plan more convincing to potential investors.
If it’s helpful, you should also discuss how your company stacks up against its competitors based on what makes it unique. In addition, you can identify any strengths or weaknesses that your company has compared to its competitors.
Based on this data, provide projections for how much revenue your company expects to generate over the next few years. Providing this information early on in the business plan will help convince investors that you know what you are talking about and your company is well-positioned to succeed.
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Other Resources for Writing Your Business Plan
How to Write a Great Business Plan Executive Summary How to Expertly Write the Company Description in Your Business Plan The Customer Analysis Section of Your Business Plan Completing the Competitive Analysis Section of Your Business Plan The Management Team Section of Your Business Plan Financial Assumptions and Your Business Plan How to Create Financial Projections for Your Business Plan Everything You Need to Know about the Business Plan Appendix Business Plan Conclusion: Summary & Recap
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How to Write a Business Plan: Target Market Analysis
The Business Plan and the Importance of Defining Your Target Market
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
Conducting a Market Analysis
Polling your target market, writing the market analysis, online tools for market research, u.s. online market research sources, canadian online market research, local sources of market research, doing your own market research.
Creative Commons CC0
The market analysis is basically the target market section of your business plan . It is a thorough examination of the ideal people to whom you intend to sell your products or services.
Even if you intend on selling a product or service only in your community, you won't be selling that service to everyone who lives there. Knowing exactly what type(s) of people might be interested in buying your product or service and how many of them reside in your projected area or region is fundamental in creating your market analysis.
Once target market data has been established, you'll also work on sales projections within specific time frames, as well as how prospective sales might be affected by trends and policies.
Research is key and cornerstone of any solid business plan .
Don't Skip This Step!
Don't skip market research; otherwise, you could end up starting a business that doesn't have a paying market.
Use these general terms as linchpins in research data for the market analysis section of your business plan, and to identify your target market:
But don't stop here. To succinctly define your target market, poll or survey members of your prospective clients or customers to ask specific questions directly related to your products or services. For instance, if you plan to sell computer-related services, ask questions relating to the number of computing devices your prospective customers own and how often they require servicing. If you plan on selling garden furniture and accessories, ask what kinds of garden furniture or accessories your potential customers have bought in the past, how often, and what they expect to buy within the next one, three, and five years.
Answers to these and other questions related to your market are to help you understand your market potential.
The goal of the information you collect is to help you project how much of your product or service you'll be able to sell. Review these important questions you need to try to answer using the data you collect:
- What proportion of your target market has used a product similar to yours before?
- How much of your product or service might your target market buy? (Estimate this in gross sales and/or in units of product/service sold.)
- What proportion of your target market might be repeat customers?
- How might your target market be affected by demographic shifts?
- How might your target market be affected by economic events (e.g. a local mill closing or a big-box retailer opening locally)?
- How might your target market be affected by larger socio-economic trends?
- How might your target market be affected by government policies (e.g. new bylaws or changes in taxes)?
One purpose of the market analysis is to ensure you have a viable business idea.
Find Your Buying Market
Use your market research to make sure people don't just like your business idea, but they're also willing to pay for it.
If you have information suggesting that you have a large enough market to sustain your business goals, write the market analysis in the form of several short paragraphs using appropriate headings for each. If you have several target markets, you may want to number each.
Sections of your market analysis should include:
- Industry Description and Outlook
- Target Market
- Market Research Results
- Competitive Analysis
Remember to properly cite your sources of information within the body of your market analysis as you write it. You and other readers of your business plan, such as potential investors, will need to know the sources of the statistics or opinions that you've gathered.
There are several online resources to learn if your business idea is something worth pursing, including:
- Keyword searches can give you an overall sense of potential demand for your product or service based on the number of searches.
- Google Trends analysis can tell you how the number of searches has changed over time.
- Social media campaigns can give you an indication of the potential customer interest in your business idea.
The U.S. Small Business Administration (SBA) has information on doing your market research and analysis , as well as a list of free small business data and trends resources you can use to conduct your research. Consider these sources for data collection:
- SBA Business Data and Statistics
- The U.S. Census Bureau maintains a huge database of demographic information that is searchable by state, county, city/town, or zip code using its census data tool . Community, housing, economic, and population surveys are also available.
- The U.S. Department of Commerce Bureau of Economic Analysis (BEA) has extensive statistics on the economy including consumer income/spending/consumption, business activity, GDP, and more, all of which are searchable by location.
The Government of Canada offers a guide on doing market research and tips for understanding the data you collect. Canadian data resources include:
- Statistics Canada offers demographic and economic data.
- The Business Development Bank of Canada (BDC) offers market research and consulting with industry experts.
- The Canada Business Network provides business information to entrepreneurs by province/territory, including market research data.
There are also a great many local resources for building target market information to explore, including:
- Local library
- Local Chamber of Commerce
- Board of Trade
- Economic Development Centre
- Local government agent's office
- Provincial business ministry
- Local phone book
All of these will have information helpful in defining your target market and providing insights into trends.
The above resources are secondary sources of information, in which others have collected and compiled the data. To get specific information about your business, consider conducting your own market research . For instance, you might want to design a questionnaire and survey your target market to learn more about their habits and preferences relating to your product or service.
Market research is time-consuming but is an important step in affording your business plan validity. If you don't have the time or the research skills to thoroughly define your target market yourself, hiring a person or firm to do the research for you can be a wise investment.
Small Business Administration. " Market Research and Competitive Analysis. " Accessed Jan. 13, 2020.
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How to write a business plan
- One-page plan
- Executive summary
- Products and services
- Market analysis
- Marketing and sales
- Milestones and metrics
- Company and team
- Financial plan
Document your market analysis
How to Write and Conduct a Market Analysis
A market is the total sum of prospective buyers, individuals, or organizations that are willing and able to purchase a business’s potential offering. A market analysis is a detailed assessment of the market you intend to enter. It provides insight into the size and value of the market, potential customer segments, and their buying patterns.
In this section, we’ll be covering what information to include in your business plan after completing your research. If you’re struggling with the research itself, you should check out our market research resources for step-by-step guidance.
On this page
How to write your market analysis
The information featured in your market analysis should focus on firmly defining who your customers are. Here are the two steps you need to take:
Define your target market
Finding your target market requires segmentation based on demographic and psychographic information until you reach the ideal customer. You need to address who they are and how you identified them.
Target market examples
A target market analysis is a key part of any business plan. Let’s walk you through some examples.
Determine your market size
Identifying your potential customers isn’t enough. You also need to prove that the size of the market can support your business. To do this, it’s helpful to define what’s available, serviceable, and can be obtained.
Optional information to include
The main purpose of the market analysis is to show who your customers are. While defining your target market may be enough, it can be helpful to include some of the following supporting details.
Show that you know your industry
Before starting a business, you should know the state of your industry and where it’s headed. This includes industry metrics you’ve collected, any barriers to entry, emerging trends, or common success factors.
Use a customer persona to describe your customers
It can be difficult for you, your employees, and potential investors to visualize who your customers are based solely on data. Creating a customer persona can bring them to life and support your target market choice.
Why conduct a market analysis?
Conducting any sort of in-depth research can be a time-intensive process. However, the benefits far outweigh the investment—so much so that it’s recommended that you revisit your market analysis at least once a year in order to stay on top of emerging trends or changes in the market.
As part of your business plan, it demonstrates that you have a firm understanding of your customers. Here are the other benefits gained by completing a market analysis:
If you really understand your potential customers and market conditions, you’ll have a better chance of developing a viable product or service. It also helps you explore if your idea will work or not. If you determine that the market size can’t sustain your business, there are too many barriers, high starting costs, intense competition, or some other factor that would lead to a higher chance of failure—you can pivot and avoid wasting your hard-earned time and money.
Better position your business
Researching the market landscape will help you strategically position your business. This may be done through pricing, specific features, production/distribution, or any other method to differentiate your business and make it more attractive to your target audience.
Verify product/market fit
Part of positioning your business is determining if there is a sustainable market for your business. This starts with segmenting and identifying your ideal customers. It then involves a process of gathering feedback, gauging interest, and finding any sort of demonstrable traction. To learn more about finding product market fit, check out the market research section of our Starting a Business Guide.
Research is not only valuable for informing you as a business owner but in convincing investors and lenders that your idea is worth funding. In many ways, the fact that you spent time pulling together viable information is just as important as the information itself. It shows that you care about finding success as a business owner and are willing to put in the work, even at this early stage.
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How to Calculate Market Share (With Formulas and Examples)
Sep 19, 2021 | Read time: 13 min.
RJ Licata , Director of Marketing
- Market share (also called revenue market share or absolute market share) is the portion of a given industry that is owned or controlled by a single brand or entity.
- Calculating market share in different ways lets you know where you’re winning, and where you need to focus your efforts.
- You can then use your market share calculations to identify where you’re weakest and devise a strategy to dominate every channel.
Contents Jump to
There are several benchmarks that brands can use to assess the health of their business. It’s important to know where your business stands in terms of market competitors.
Enter market share. While this metric is typically used for financials, market share can also be used to determine your business’ digital reach. Owning the market share of consumer attention in your industry helps you gain an edge over your competitors.
In this article, we’ll break down how to calculate market share and provide market share examples.
What is market share?
MARKETING TERM DEFINITION Market Share Market share is the portion of a given industry that is owned or controlled by a single brand or entity within a time frame. Market share refers to a calculation that shows, in percentages, the revenue generated by a single company, as compared to the revenue earned by the entire industry.
A low market share tells you that your business holds a smaller share of the market, while a high market share highlights that your business holds a larger share of the market. This percentage is also referred to as absolute market share or revenue market share.
Relative market share
While absolute market share paints a picture of how your business is doing compared to the entire market, the relative market share shows where your company stands in comparison to a particular company, typically the leading competitor in the market.
Depending on the industry, relative market share can reveal where your business stands in comparison to a specific industry leader.
Market share by units sold
If you own a business that sells products en masse, you’ll need to know how to calculate market share by the total number of units sold in a given period of time when compared to the entire market size of units sold.
This is the same calculation as market share by revenue. You just swap out dollars for products.
Market share by organic search traffic
If you generate leads or sales through your website, you should also know how to determine market share by organic search traffic. This is the ratio between the clicks you get out of the total available clicks for a defined set of keywords.
It’s a great figure to have on hand when deciding how much money you need to spend on paid advertising and content strategies for your business.
Organic search traffic is often the most overlooked market share calculation, much to the detriment of businesses across virtually every industry. The majority ( 53% ) of shoppers do thorough online research before they make a purchase. So, it’s vital that you show up throughout the conversion funnel while they’re narrowing down their options.
Why market share calculations matter, an example
Tesla provides the perfect example of why you need to know how to calculate market share.
In 2023, Tesla owned an impressive 21.7 percent of the global electric vehicle (EVs) market share. This is a huge success when you consider just how many car retailers have added EVs to their fleets.
Tesla couldn’t have become the household name it is today without the help of a team of brilliant decision-makers. After they calculated Tesla’s market share within the global EV market, the company decided it could do things differently and take on long-standing competitors in the auto industry.
Tesla created a unique business model that allowed it to retain total control of the sales and all service aspects of Tesla vehicles. By doing this, it made a product that appealed to consumers in thrilling new ways.
Had Tesla not done a deep market share analysis, the company might have missed the opportunity to truly own the market.
By learning how to calculate market share in different ways, you’ll gain strategic advantages over your competitors. When you view market share as more than a single number, you can take a more granular approach to measuring business growth (and risk) across multiple fronts.
Why you need to know how to calculate market share
Almost every consumer market is saturated with brands competing for a limited pool of customer dollars. Brands need to fully understand multiple types of market share to know their position and that of the competition.
Calculating your market share adds transparency to your business model, provides clarity on successes and failures, and lets you iterate on inefficiencies.
1. Compares your brand with competitor performance
There are several rulers you can use to compare your performance with competitors.
If you’re a publicly traded company in the U.S., look at the United States Securities and Exchange Commission’s tool, Electronic Data Gathering, Analysis, and Retrieval system ( EDGAR ). EDGAR allows anyone to search the Securities and Exchange Commission’s database. This will give you deep insights into your competition.
How your competitors perform in Google is another indicator to monitor.
Who owns the largest market share of Google’s organic search results in your industry? Do your competitors rank well for highly valuable keywords? How do you perform for product vs. informational queries? Are you present throughout the funnel, including TOFU, MOFU, and BOFU searches ?
2. Reveals your brand’s market penetration/saturation
Market penetration is a measure of how successful a brand is in its given industry. Popular brands will saturate the market with their presence, making it difficult for other brands to break in and compete for customer attention and, ultimately, revenue.
You can measure market penetration with a simple market share formula. You’ll need to compare your sales volume for the year against the total target sales for your industry in that year. Brands use this formula to determine pricing and marketing budgets, as well as how they will promote their products to customers.
If you understand your current market penetration, then you can more effectively assess new growth marketing opportunities . As a result, you’ll box out the competition and cement your position as the market leader.
3. Pinpoints new market opportunities for your brand
Market penetration is a quadrant on the Product-Market Growth Matrix , or the Ansoff Matrix. This grid tool used in brand strategic planning helps organizations assess new market opportunity feasibility to determine which opportunities best suit the overall strategic vision of a brand.
The Ansoff Matrix provides businesses with a step-by-step strategic growth process to follow and helps mitigate risk by thoroughly evaluating every proposed business pivot or opportunity. It can also lay the foundation to generate new business opportunities.
Here’s a quick review of the Ansoff Matrix quadrants:
- Market penetration — Boosting sales of your existing products in the market that you currently occupy
- Product development — The ideation and creation of new products or services
- Market development — Plans and strategies on how to enter new markets with the products or services you currently have
- Diversification — Breaking into new markets with new products or services
It’s clear that while understanding market penetration is one step in growing a successful business, it’s part of a larger puzzle. Brands that win approach this puzzle holistically and look for opportunities that competitors will miss or disregard. Knowing where you stand regarding market share is the first step of the process.
How to calculate market share
Outlined below are the types of market share formulas you need to understand.
You might need some sales analytics on your total revenue for last year (or any recent fiscal year or fiscal quarter) as well as metrics on the industry’s total revenue to figure out your company’s market share. Just plug those numbers into Excel and you will have a treasure trove of data to analyze.
How to calculate market share by revenue
- Select your fiscal period
- Calculate your company’s total sales
- Calculate the total market sales for your industry
- Divide your company’s total sales by your industry’s overall market sales
- Multiply the sum by 100 to get the percentage
How to calculate relative market share
- Calculate your company’s absolute market share
- Calculate your competitor’s absolute market share
- Divide your company’s market share by your competitor’s market share
How to calculate market share by units sold
- Calculate your company’s total unit sales
- Calculate the total units sold for your industry
- Divide your company’s total units sold by your industry’s total units sold
How to calculate market share by organic search traffic
- Calculate the total available clicks within a defined set of keywords based on total search volume and click-through rate (CTR)
- 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 clicks by the total number of clicks in the term
- Multiply the sum by 100
Examples of organic search market share reports
Here are two real world organic search market share report examples that Terakeet recently published on the beauty and cosmetics industry as well as the financial services industry . Download these reports below.
How to increase your market share
With the knowledge to calculate and assess your brand’s share of the market through several lenses, it’s time to learn how to improve your brand’s overall competitiveness, and ultimately, your company’s total revenue.
By expanding what you offer, how you offer it, and where you offer it, you can begin to take the lion’s share of your market.
Grow organic search market share
In terms of marketing return on investment (ROI), organic search is the most powerful customer acquisition channel you can leverage. According to Google, it drives 5x greater results compared to pay-per-click (PPC) .
This is because consumer shopping behavior has changed. For years, customers have been warming up to online or hybrid buying experiences. However, the pandemic accelerated the trend, pushing consumers deeper into the digital shopping ecosystem.
Potential customers don’t just buy online; they research, compare, ask questions, and make decisions based on what they discover.
The online publication Byrdie managed to capture a significant portion of organic search market share from massive beauty brands by creating informational content. When Terakeet calculated its market share within 9 sectors of the beauty industry, they were near the top of the leaderboard.
Shifting your investment
As a marketing executive, you must recognize that shift in consumer behavior and increase your investments in comprehensive, engaging, authoritative, search-optimized content. This content, delivered through a network of owned brand assets, captures customers across the buyer’s journey and builds priceless trust with your audience.
Brands that foster trust and authentic connections with consumers gain market share with each new connection, capitalizing on earned brand loyalty and, ultimately, achieving market leadership.
If that aligns with your goals, we recommend learning about owned asset optimization (OAO). See our OAO foundational guide .
Develop new products or services
If you want to launch your business into the public consciousness, then develop new products or new services.
Look at Coca-Cola, for example, a legacy brand that decided to think differently about the soft drinks industry. As other competitors entered the market, Coca-Cola knew it could offer its flagship product in different flavors, so the brand did it.
Developing new products always comes with a certain amount of risk. Especially when it comes to food and beverages. Consumers are often creatures of habit. So, Coca-Cola had to do a tremendous amount of market research and brand awareness campaigns to get people on board. The rest, of course, is history.
There are nearly 57 billion drinks served each day, and nearly 2 billion are drinks owned or licensed by Coca-Cola. Now that’s market saturation.
Mergers and acquisitions
Another way Coca-Cola discovered that it could increase market share was by diversifying its portfolio of products to include other types of drinks such as Vitaminwater. As a sole entity, Vitaminwater was initially doing $350 million in annual sales on its own. When Coca-Cola purchased the company, that annual revenue grew to 1 billion dollars in sales.
Acquiring other companies removes some of the grunt work of establishing a new business. You get a built-in customer base and many of the starting operational costs are already taken care of. That said, it can be a major investment to acquire other companies, especially when they are already profitable. But, in the case of Coca-Cola and so many others (like Nestle and major media corporations)
Imagine new ways of doing business
Not only does Coca-Cola know how to increase market share through acquisitions, the company has transformed over the years.
Coca-Cola was created by pharmacist Dr. John Stith Pemberton in Atlanta in 1886. It was created to be a tonic. Back then, it included wine and cocaine to “treat” several alignments.
Not long after Pemberton created the beverage, prohibition passed in his state. So, Coca-Cola was almost quashed before it even began. But, Pemberton was a true entrepreneur. He removed the wine and replaced it with syrup , making the earliest iterations of the Coca-Cola most of us are familiar with.
Imaging new ways of doing business has always been at the heart of Coca-Cola’s story, and it has been an unbelievably successful story. That’s what makes them the drink market leader.
So, maybe your brand needs its own Coca-Cola story. You could create an incredible digital customer experience on your website. Or, perhaps you invest in a new digital transformation initiative that’s been on the burner for several years.
Improve customer retention
When you improve customer retention, you lower the costs of doing business. Elastic Path says it can cost five times more to acquire a new customer than to keep current customers. That type of fiscal drain adds up over time. When you reduce your customer acquisition costs (CAC) , you increase profit margins and you free up room in your budget to put into growing your business in other ways, like the ones outlined above.
Increasing customer loyalty and retention increases profitability by a significant margin, so you must prioritize customer relationships.
Acquiring new customers costs 5x more than keeping current customers
Existing customers are 50% more likely to buy a new product or service
Increasing customer retention by 5% increases profits 25-95%
Expand your customer base
When you expand your customer base to include new demographics, you unlock greater business potential.
In some cases, this may require nothing more than a shift in marketing messaging. Or, you might need to introduce a modified product or service with different features. In other cases, you may need to expand your customer acquisition efforts across different channels, bridging the gap between online and offline brand interactions.
Use market share calculations to build better strategies
It’s vital to know how to calculate market share to gather insights such as your company’s sales revenue compared to the industry’s total sales, or whether a specific competitor has a significant market share in Google search. You must have access to these data points to build more effective strategies.
For example, you could have the highest total revenue because your products are more expensive. On the other hand, you might sell the most products, but at lower prices, shrinking your revenue numbers.
Or, you may have the highest revenue and the most product sales, but you overspend on paid ads and affiliate marketing which reduces your profit margins. You may even have a high market share in one specific market, but almost no penetration overall within the industry.
If you analyze any one of these metrics in a vacuum, you might conclude that you’re the market leader. However, at closer examination, you’d realize that you’re behind.
Ultimately, it’s important to consider all the variables when calculating market share so your business remains profitable and competitive.
Takeaways on organic market share
Knowing your market share and implementing a combination of market share growth strategies is a key way to gain an edge over your business’ competitors and lead to market share increases. Especially in areas where your competitors may not be thinking of such as organic growth.
Knowing where you stand is the first step to tackling the bigger goal of market share dominance. Keep in mind that there are many forms of market share to pursue, and one that’s often overlooked but incredibly important is organic market share. Attention is everything in today’s digital spaces.
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Define Market Share: Part 1
Then conduct a marketing swot analysis.
Define market share , and the share of the market that your business has (and wants) as part of your planning process. The next steps in building your marketing plan include: conducting a marketing SWOT analysis, defining the marketing mix, segmenting and targeting your market, building an action plan (with measurable performance indicators). Make sure that your plan includes a strong focus on increasing your market share (as there is strength in size).
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From a marketing and sales perspective, it is important to understand and define market share; this is a necessary activity for businesses that want to grow.
For example, if your business sells $1.5 million of products in your market you need to know if that represents 5% or 95% (or somewhere in between) of the overall market.
Because it will be much more difficult to grow your share if you already have a significant amount of the market potential and you will need to build your marketing strategies accordingly.
A good analogy for market share is that it is a 'piece of the whole pie' ... with the pie being the market, and the piece of pie being what the business sales represent.
Definition of Market Share
How to calculate market share.
A more traditional definition of market share is that it is the business' 'share' or percent of the total market.
One of the ways to calculate market share is:
Business Sales Revenue divided by total Market Sale Revenue
For example, if you owned a computer services business, if sales last year were $500,000, and if the total market size was $50,000,000, then the computer market share is 0.1 or 1%. It is fair to say that you are not a big player in the market; from a market perspective, you are not a market leader, you are, by size alone, a market follower.
More formally, market share information is calculated by comparing individual business revenues to the total defined market.
The big challenge in either equations or calculations, and in understanding how to increase market share, is in first accurately defining what is market size.
If your total defined market is a country; then the total domestic market is "calculated by adding manufacturing shipments to imports and subtracting total exports." (Statistics Canada) However duplication of manufacturing data in most country statistics can result in a distorted total figure.
Define Market Share: More on Research Sources
In some cases, particularly for global markets, you may have to buy some research data to obtain market size information. Usually, however, you should be able to gather the market size information through secondary research, such as:
- Industry Canada which is the Canadian government's business and industry site.
- The US Department of Commerce site is a good source of information on business in the United States and provides access to economic indicator reports and industry performance data.
- Industry or trade associations are also good sources of market size data. For example: Business owners interested in manufacturing and exporting from Canada can access information through the Canadian Manufacturers and Exporters (CME) trade association website. In addition to industry resources, this site also provides a number of publications and reports for entrepreneurs.
There are also many market research sources available on a per fee basis. A couple of those sources are listed below:
Defining market size is the first part of the marketing planning process. During marketing planning, you need to segment your market , target your market , define marketing mix and build the marketing mix program, and a variety of other activities.
Understanding what share of the market you have, and want, is only part of your marketing process: you also need to do a marketing SWOT analysis (strengths, weaknesses, opportunities and threats) and to define marketing mix.
Additionally, to define market share for your business, you need to recognize where you fit in the overall market.
Once you understand both market size and your share of the market, you need to learn how to increase market share (or not). Part 2 of Define Market Share will help you to understand why market share is important to your business and how you can manage market share to target business growth.
For more timely and regular monthly information on managing your small business, please subscribe here., additional reading:.
Understand Competition Analysis and how to manage your competitive tactics.
Conduct an Industry Analysis to learn more about your marketplace.
Build strong Market Strategies to win more market share.
Or for more on how understanding market share will help your business compete, return from Define Market Share, Part 1 to What is Market Share? Part 2 .
Why is Product Differentiation a Necessity to your Marketing Plan ?
Return to Definition of Marketing .
Or return to More For Small Business Home Page .
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Marketing and life–cycle.
Marketing is a requirement for all businesses: without marketing strategies and tactics your business will struggle to survive.
Not all marketing activities are planned: you might be building your brand recognition through a social media campaign (that's marketing); you might be conducting market research to analyze your competitors and/or segment and target your potential market or to develop the most desirable features, advantages and benefits of your products or services (that's all marketing).
Marketing is pretty all–encompassing; and a challenge for many business owners. The additional challenge is recognizing that the different stages of your business life–cycle: start–up, mid–cycle, mature or late–in–life.
During start–up you need to develop your marketing strategies to grow sales; for example, you might want to use a market penetration pricing strategy to build sales quickly.
During mid–cycle, you need to grow your customer base (often through lead generation) and that need requires different marketing strategies, such as cold calling on prospective clients, email marketing, newsletter and blog sign ups and distribution (all to grow your list of prospects).
During the mature cycle, you need to build your marketing efforts around your brand; your competitive advantage can be in your reputation, history, and identity and on what differentiates your business from your competitors.
Marketing your products and services is not something that you do once (such as a marketing plan) and then never change or do again. You need to be continually researching and building your strategies and tactics to be ahead of the market, and ahead of your competition.
The market is constantly evolving; ever more rapidly with the impacts of globalization and technology. You need to invest resources into marketing to ensure that you build and sustain your business.
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If marketing is not your core strength, or if you don't have enough staff to commit to developing your marketing efforts (and acting on the plan), outsourcing your marketing strategy and implementation will allow you to concentrate on developing your business.
Start with a marketing plan that includes the necessary research, strategy development and implementation action plan. We provide you with the plan tactics, budget, schedule and key performance measurements.
Execute the plan yourself or have us at Voice Marketing Inc. manage the execution for you.
Once the plan is implemented, we report on the actions we've taken, the performance of the tactics employed, and on the results.
You'll feel confident that your business marketing is being effectively managed and continually evolving.
We specialize in providing services to small business owners and understand that marketing efforts must be customized for each business' unique needs.
We are located in the Greater Vancouver area of British Columbia, Canada.
You can reach us through our contact page or request a quote for services here .
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