how to get market share in business plan

Plan Projections

ideas to numbers .. simple financial projections

Home > Business Plan > Market Share in a Business Plan

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.

You May Also Like

What Is Market Share & How Do You Calculate It?

Updated: December 07, 2022

Published: January 16, 2020

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.

Free Market Share Calculator

Five calculators to help you quickly and easily calculate your market size

• Total Addressable Market (TAM)
• Serviceable Addressable Market (SAM)
• Market Size & Share
• Market Penetration Rate

Download Free

All fields are required.

You're all set!

Click this link to access this resource at any time.

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.

Don't forget to share this post!

Related articles.

Market Research: A How-To Guide and Template

What Is a Competitive Analysis — and How Do You Conduct One?

The Beginner's Guide to the Competitive Matrix [+ Templates]

9 Best Marketing Research Methods to Know Your Buyer Better [+ Examples]

SWOT Analysis: How To Do One [With Template & Examples]

28 Tools & Resources for Conducting Market Research

TAM, SAM & SOM: What Do They Mean & How Do You Calculate Them?

How to Run a Competitor Analysis [Free Guide]

5 Challenges Marketers Face in Understanding Audiences [New Data + Market Researcher Tips]

Causal Research: The Complete Guide

The weekly email to help take your career to the next level. No fluff, only first-hand expert advice & useful marketing trends.

Must enter a valid email

We're committed to your privacy. HubSpot uses the information you provide to us to contact you about our relevant content, products, and services. You may unsubscribe from these communications at any time. For more information, check out our privacy policy .

This form is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

You've been subscribed

• Search Search Please fill out this field.
• How to Calculate Market Share
• Comparing Market Shares

Why Is Market Share Important?

Real world example of market share, the bottom line.

• Corporate Finance
• Financial Analysis

How Do I Determine the Market Share of a Company?

Market share tells investors how much of a market is controlled by one company

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

A company's market share is its sales measured as a percentage of an industry's total revenues. You can determine a company's market share by dividing its total sales or revenues by the industry's total sales over a fiscal period. Use this measure to get a general idea of the size of a company relative to the industry.

Investors look at changes in market share as a possible sign of the relative competitiveness of a company's products or services. As the market of a product or service within an industry expands, a company that is maintaining its market share is growing its revenue 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.

Key Takeaways

• Market share is the proportion of activity of a specific company compared to the rest of the industry.
• Market share is usually calculated using total revenue, though non-financial metrics like units sold or the number of customers can also be used.
• Market share is calculated by dividing the company's total by the industry-wide total for any given data set.
• Market share is useful when comparing companies across the same industry.
• Companies with higher market share are often less risky investments with less upside than companies with lower market share.

How to Calculate a Company's Market Share

A company's market share is often quoted as a percentage of industry-wide sales. However, there are other ways to calculate a company's market share. For example, instead of comparing total dollar sales, you can determine how many monthly subscriptions a single company had compared to the rest of the streaming industry. With this in mind, there are five steps to calculating market share:

Select the period to analyze. It'll be easiest to obtain monthly, quarterly, or annual data. Keep in mind that you must gather information for both the specific company you wish to analyze as well as the entire industry they reside in.

Select your market share basis. You're most likely to see market share determined by dollars of revenue. However, you can select non-financial aspects of a company as well. For example, instead of seeing what a company's total revenue is compared to the industry total, you can analyze a company's total number of customers compared to the industry-wide number of customers.

Determine the single company's total. Again, this can be the total revenue from a specific period or a non-financial metric like the number of units sold. You can obtain market share data from various independent sources such as trade groups, regulatory bodies, or periodic financial disclosures issued by the company.

Determine the industry-wide total. This figure must correlate to the data source in Step 3. It must cover the same time period, and it must be determined using the same methodology. For example, if the data selected in Step 3 is limited to a specific geographical area, the data in Step 4 must also be limited to this region.

Divide Step 3 by Step 4. By dividing the company total by the industry-wide total, you're left with a percentage that represents the size of the company's presence in the total market. Companies with high percentages have a greater market share, and your quotient should not exceed 1 (as a company cannot own more than 100% of any aspect of an industry).

Example of Market Share Calculation

Suppose you want to calculate a toy manufacturer's market share over one fiscal year . The toy manufacturer had total revenues of $20 million, and the toy manufacturing industry had total revenues of $200 million over one fiscal year. To find the toy manufacturer's market share, divide $20 million by $200 million. The manufacturer's market share is 10%.

The toy manufacturer then releases a new product that captivates its target audience. During the first quarter of the following year, the company had total revenue of $10 million, while industry-wide revenue was $40 million. The company's market share has now increased to 25% of first-quarter sales.

Doing deeper analysis, it was determined that the toy company sold to 10,000 customers during the first quarter. In total, 31,250 customers purchased toys during this time. Although the company's market share in terms of dollars was 25%, the company's market share as a factor of total customers was 32%.

Comparing Market Share in an Industry

Market share can also be used to compare similar companies within the same overall industry . For example, suppose one technology company has a 20% market share while a second technology company has a 15% market share. This signals that the first company has a larger market presence than the first company.

It is also possible to use market share over multiple periods to see how well a company fares against its competitors and whether the company is growing. In the following year, let's imagine the first technology company has grown to a 25% market share. However, its competitor has doubled in size and now controls 30% of the market. Though the first company has scaled , it has been outperformed by the second company which now has the strongest presence.

Analyzing Market Share

When analyzing market share, consider how a company's market share has changed over time, how its competitor's market share has changed, and how reliable the underlying data is for both.

Market share is an indicator of which companies are leading their respective industries. When a company controls most of the market share, they are recognized as the leader in their field. Companies that control the market usually have stronger brand recognition , broader competitive advantages regarding price and product placement, and more efficient scaling opportunities.

Companies are always looking to expand their share of the market, as well as grow the size of the total market by appealing to larger demographics, lowering prices, or using advertising. Companies with a larger market share have more effectively organized their company to appeal to the broad market, while companies with a smaller market share may be young or yet to appeal to the broad market.

When making an investment decision, it is important to analyze market share to decide whether the company aligns with your investment goals. Companies with a larger market share may be safer investments, though their upside may be limited as they have already achieved market success. Alternatively, companies with a lower market share are at risk of being pushed out of business though they offer greater long-term potential if they find success.

Microsoft is the global technology company that develops, licenses, and sells a wide range of software products and services including the Windows operating system, Office productivity suite, and Azure cloud platform. It also manufactures and sells hardware, such as the Surface line of devices and Xbox gaming consoles. As it sells a number of different products in a number of different markets, Microsoft holds a variety of market share across multiple industries.

There are a variety of resources, both official and unofficial, that measure how much market share Microsoft owns for some of its products. Some Microsoft market share statistics are below. Note that some statistics have been gathered and analyzed by private companies and may not come directly from Microsoft or its competitors.

• According to 6sense, Microsoft Office 365 holds a 7.91% market share in the application suite category. The clear leader in the industry with the most market share is Google's G Suite with an estimated 75.47% market share.
• According to HTInsights, Microsoft Azure held a 24% market share in the global cloud computing market in 2024.
• According to the United States government, Microsoft held "a dominant market share" that "reflects monopoly power because its position in operating systems is protected by high barriers to entry."

What Is Market Share?

Market share is the measurement of how much a single company controls an entire industry. It's often quoted as the percentage of revenue that one company has sold compared to the total industry, but it can also be calculated based on non-financial data.

Why Is Market Share Important to Investors?

Market share informs investors of how successful a company has been compared to its competitors. If a company has a high market share, it is a successful company that has secured customers, likely has a recognizable brand, and it's more likely to be a less risky investment. Alternatively, companies with low market share provide higher investment upside, though the success of the company is still to be determined.

Is It Good to Have a High or Low Market Share?

In general, it is often better to have a high market share. If a company has a high market share, they are well-established in an industry and have likely achieved some level of success. If an investor wants to pursue riskier endeavors in younger companies yet to control their market, it is better to seek out companies with low market share.

A company's market share tells investors how much of the market a company controls, that is, a reflection of how in demand and popular a company's products or services are. Higher market shares indicate a company to be more dominant, which signifies higher revenues and generally higher profits. A lower market share can indicate a weakness in competitiveness or signify a company's inability to continue operating; however, it could also just mean a company is new in the industry and has yet to prove itself.

6Sense. " Top Competitors and Alternatives of Microsoft ."

HGInsights. " Microsoft Azure Market Share & Buyer Landscape Report ."

U.S. Department of Justice. " U.S. V. Microsoft: Proposed Findings of Fact ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

Marketing Resources

• Career Guides
• Interview Prep Guides
• Free Practice Tests
• Excel Cheatsheets

💡 Expert-Led Sessions 📊 Build Financial Models ⏳ 60+ Hours Learning

Market Share Formula

Publication Date :

25 Jul, 2023

Blog Author :

Harsh Katara

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

Table Of Contents

What Is Market Share Formula?

Market share can represent the percentage of the market's total revenue or industry that a particular firm shall earn over a specified period. It is a metric used to measure the total revenue the company earns compared to the market where it operates.

The formula used to calculate the market share shows what is the percentage of the portion of the total market that the company is controlling. It helps the business understand and identify its position in the total market in terms of competitiveness and indicate the level of business performance over a period of time.

Key Takeaways

• Market share may be the proportion of a market's overall revenue or industry that a particular company will generate over a given period.
• A large percentage of market share is a significant predictor of corporate success, significantly if that market share is increasing.
• When a company gains a significant market share, it may be subject to rules and regulations, including anti-competition legislation.
• According to the regulations, the government may only allow them to complete the planned mergers if they have a substantial market share. As a result, a decrease in competition in that industry.

Market Share Formula Explained

The total market share formula is a financial metric companies use to evaluate the position of the business in the entire market or industry where it is operating in terms of competitiveness, revenue, or customer base. The company captures the information for a specific period using the relative market share formula, which is used as a benchmark to assess the business's health and identify areas for improvement.

Market share can be calculated using the below formula:

Market Share = Company’s Revenue (Sales)/Entire Market Revenue (Sales)

The above formula shows that the total revenue earned by the company is divided by the entire market revenue in order to get the market share. The management can use the above formula to understand the growth and performance of the company over a period of time. However, the value depends on the type of market the company is operating in, the category of products being produced, and the time frame for the analysis.

How To Calculate?

To calculate the market share using the relative market share formula, follow the below steps.

To calculate a firm’s market share using the revenue market share formula, one needs to be clear about the period, which shall be either a year, fiscal quarter , or several years. Then the next step is to calculate the firm's total revenue over that period.

The second last step would be to find out the total revenue of the firm’s industry. And finally, divide the firm’s total sales by its industry’s total revenue.

Investors or any financial analyst can obtain the market share data from several independent sources, like the regulatory bodies or the trade groups, and sometimes from the firm itself.

Thus, the above steps are used for the calculation of market share for facilitating the decision making process of management regarding position of the business in the sector and what are the future prospects for expansion and improvement.

Let us try to understand the concept with the help of some suitable examples.

JBL has reported its gross revenue of US$ 30 million, and the industry in which JBL operates has total gross revenue of US $ 500 million. You are required to calculate the market share of JBL inc.

Use the below-given data for the calculation of the market share.

• Company's Total Share: 30
• Industry Sales: 500

Given the company's sales and market share, we can use the above equation to calculate the company's market share using the sales or the revenue market share formula.

Calculation of market share can be done as follows:

Market Share = US$ 30 million / US$ 500 million

Market Share will be -

Market Share = 6%

Hence, the market share of the JBL is 6%.

SAB tv operates in many different locations and is currently under review for a hostile takeover from Star Network. The reason being Star thinks that SAB tv’s market share is increasing. However, the finance research department had a different story to tell. They were of the opening that & pictures are capturing the market share more than SAB tv and & pictures should be the target company to be taken over. The company's CFO has asked to develop market share for both of these targets, and whoever share percentage is bigger will be targeted.

You are required to calculate yearly revenue for SAB tv, & pictures, and Market sales, along with percentage.

We shall first calculate the total sales of both SAB tv and & pictures and Market sales below:

Now, we can use the above equation to calculate the market Share for SAB TV using the potential market share formula:

Market Share = 3900000 / 39650000

Market Share for Sab TV will be -

Market Share = 9.84%

Calculation of market Share using the potential market share formula for & Pictures can be done as follows:

Market Share = 4030000 / 39650000

Market Share for & Pictures will be -

Market Share = 10.16%

Hence, it appears that the statement made by the finance research department is correct as the market share of & pictures is more than SAB tv. It is advisable to target & pictures for a hostile takeover.

A street analyst is trying to conduct top-down research, and he wants to select the company which has a market share of at least 20% in its industry. Below are some of the top performer's stocks in their industries:

You must find out the stock that can be shortlisted based on the abovementioned criteria.

Calculation of Market Share for Stock A can be done as follows:

Market Share = 2345678 / 30040078

Market Share for Stock A will be -

Market Share = 7.81

Now, we can calculate market share using the above formula and arrive at the percentage respectively for all the stocks.

From the above table, it is clear that the street analyst will shortlist stocks B and E, and the rest of the stocks will be dropped down at this stage of screening.

Relevance And Uses

The total market share formula, which is big in percentage, is a strong indicator of business success, especially if that market share is trending upwards.

A big market share can boost business and lead to price leadership in the market, whereas the competitors will be more likely to follow the company in terms of price points that the leading firm shall establish. This situation mostly arises when the firm is the low-cost leader in that industry. However, a firm that offers goods at a lower price point may not necessarily be the most successful one in finance of that industry. A smaller firm shall reap more profits by taking over a more profitable niche within that market.

The company can use this formula for analysing the performance and track its progress on a year-to-year basis. If the market share grows, it is a sign that it is gaining more customers and proceeding in the right direction.

It can be used to design sales strategies. If market share is low it means that the business needs to invest more in advertising, marketing and product improvement to gain more customers. This will also lead to identifying more investment opportunities, which might be useful for increasing sales.

It can also be used as a benchmark to assess whether to identify areas for improvement or operations that are not adding much value to the business in terms of revenue generation and should be discontinued.

However, if a firm attains quite a larger market share, it can be subject to rules and regulations, including anti-competition laws. Under these regulations, the government might not allow them to complete the proposed mergers because they may have excessive-high market share and, subsequently, a downfall in the competition in that industry. Overall the formula is a good indicator of the company’s position but should be used along with other factors like profitability and market trends to get a comprehensive view of the business performance.

Frequently Asked Questions (FAQs)

What is a good percentage of market share, how can we protect market share, what does higher market share mean.

UMA Technology

How to Calculate Market Share [Formula + Guide]

Calculating market share is an essential aspect of analyzing a company’s performance in a specific industry. Market share is a percentage that represents a company’s sales revenue compared to the total sales revenue generated by all companies in that industry. It gives businesses valuable insights into their position in the market and helps them understand their competitive landscape. In this article, we will explore the importance of market share, the formula used to calculate it, and a step-by-step guide on how to calculate market share effectively.

Importance of Market Share Market share is a key metric that helps businesses evaluate their performance and identify growth opportunities. It provides valuable insights into a company’s competitive position in the market and is a critical factor in strategic decision-making. Here are some of the main reasons why market share is important:

Competitor Analysis: Market share allows businesses to compare their performance with that of their competitors. By analyzing market share data, companies can identify their strengths and weaknesses relative to their competitors and develop strategies to gain a competitive advantage.

Growth Opportunities: Market share data helps businesses identify growth opportunities in the market. By understanding their current market share, companies can set realistic growth targets and develop strategies to increase their market presence.

Marketing Effectiveness: Market share is a key indicator of a company’s marketing effectiveness. By tracking changes in market share over time, businesses can evaluate the impact of their marketing efforts and make adjustments to their marketing strategies accordingly.

Investment Decisions: Market share data is often used by investors and stakeholders to evaluate the performance of a company. A company with a high market share is generally considered more attractive to investors, as it indicates a strong position in the market.

Formula for Calculating Market Share The formula for calculating market share is relatively straightforward and involves comparing a company’s sales revenue to the total sales revenue generated by all companies in the industry. The formula for calculating market share is as follows:

Market Share = (Company’s Sales Revenue / Total Industry Sales Revenue) x 100

To calculate market share, you will need to know the company’s sales revenue for a specific time period and the total sales revenue generated by all companies in the industry during the same period. Once you have this information, you can plug it into the formula above to calculate the company’s market share.

Step-by-Step Guide on How to Calculate Market Share Calculating market share involves several steps, from gathering the necessary data to interpreting the results. Here is a step-by-step guide on how to calculate market share effectively:

Step 1: Define the Market The first step in calculating market share is to define the market in which the company operates. This involves identifying the industry or market segment in which the company competes and determining the total sales revenue generated by all companies in that market.

Step 2: Gather Sales Revenue Data Next, you will need to gather the company’s sales revenue for a specific time period, typically a year or a quarter. This information can be obtained from the company’s financial statements or sales reports.

Step 3: Calculate Total Industry Sales Revenue To calculate market share, you will also need to determine the total sales revenue generated by all companies in the industry during the same time period. This information can be obtained from industry reports, market research studies, or publicly available financial data.

Step 4: Plug the Data into the Formula Once you have gathered the necessary data, you can plug it into the market share formula:

By dividing the company’s sales revenue by the total industry sales revenue and multiplying the result by 100, you will calculate the company’s market share as a percentage.

Step 5: Interpret the Results After calculating the company’s market share, it is important to interpret the results in the context of the industry and competitive landscape. A high market share indicates a strong position in the market, while a low market share may suggest room for growth and improvement.

Step 6: Monitor Market Share Trends It is essential to track changes in market share over time to evaluate the company’s performance and identify trends in the market. By monitoring market share trends, businesses can identify opportunities for growth and make informed strategic decisions.

Conclusion Calculating market share is a valuable tool for businesses to evaluate their performance, analyze their competitive position, and identify growth opportunities. By following the steps outlined in this guide, companies can effectively calculate market share and use this information to make informed strategic decisions. Market share data provides valuable insights into a company’s position in the market and is a key metric for evaluating performance and setting growth targets. By understanding the importance of market share and how to calculate it, businesses can gain a competitive advantage and drive success in their respective industries.

Leave a Comment Cancel reply

Save my name, email, and website in this browser for the next time I comment.

• Credit cards
• View all credit cards
• Banking guide
• Loans guide
• Insurance guide
• Personal finance
• View all personal finance
• Small business
• Small business guide
• View all taxes

You’re our first priority. Every time.

We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. Here is a list of our partners .

How to Write a Market Analysis for a Business Plan

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

How is this page expert verified?

NerdWallet's content is fact-checked for accuracy, timeliness and relevance. It undergoes a thorough review process involving writers and editors to ensure the information is as clear and complete as possible.

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:

Industry outlook

Target market

Market value

Competition

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:

Market size

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

Projected growth

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:

Demographics

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:

Income level

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

Focus groups

Reading reviews

Feedback 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

Advertising

Environmental regulations

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.

Final thoughts

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.

On a similar note...