How to Calculate a Market Share Relative to Another
Original post by David Ingram of Demand Media
Understanding a company's market share relative to another company can provide valuable insight, but relative market share data is not always readily available. For small business owners, it can be helpful to calculate market share relative to competitors, and as a percentage of the total market, to gauge their companies' growth momentum and inform their strategic planning efforts. Calculating market share is relatively straightforward, but it requires a bit of research to define the variables involved.
Define the target market served by both companies in demographic and geographic terms. Do not include psychographics such as self image or behavioristics such as susceptibility to impulse advertising. An example of a demographic/geographic market segment could be "males age 25-40 in the greater Houston area."
Determine the size of the market. Visit the Bureau of Labor Statistics' website (bls.gov) to find population data matching your target market criteria above. To determine the size of the example market above, you could perform an age statistics report on residents in Houston and surrounding suburbs to determine the number of Houston men in your age range.
Calculate the total value of the market in terms of sales revenue. This can be tricky for companies selling a range of products and services at varying price points. Use the cost of your most common or middle-tier products as a metric for this step, and find an average cost of the same product category from both companies. Multiply this average cost figure by the number of people in your market to find the total monetary value of your market.
Find the annual total revenue figures for both companies under consideration. If one company is your own, use your accounting records to quickly find this figure. If either company is a publicly traded corporation, take the revenue figure from the most recent income statement. If either company is a privately owned company in which you do not hold an ownership stake, contact the company personally for the information. If you find that a company is unwilling to reveal its income information, offer to share the results of your calculation with them.
Divide the company revenue by the total market value and multiply that amount by 100 to calculate the market share of each company as a percentage of the total market.
Divide one company's revenue by the other company's revenue to calculate the market share of each relative to the other. The result of this calculation will show you the percentage of the second company's total market share compared to the first.
About the Author
David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.