Market share may be defined as the part of a market which belongs to one company during certain time period. It is determined by the following formula: sales that the company has during the time period is divided by the number of total sales in the whole industry for the same time period. By applying that formula, it is possible to determine the importance of the company in the market and related to its competition.
Meaning and purpose
Calculating the market share (value is usually presented in per cents) is the most important factor when determining where the company stands relative to its competition. It can say a lot about company’s success: its rise and fall, different trends and their success, acceptance of changes in company policy etc.
The importance of market share is greater than the average business owner thinks. In fact, that may be the reason why he is average – what all the great and successful companies have in common are high market share values. Many entrepreneurs rather focus on other success factors such as customer loyalty, satisfaction, leads etc. The result of that process is often a false sense of growth, since the company may be doing better than a certain time period ago, but there is no way to see how it stands in relation to its main competitors.
Of course, market share can’t be the only measure when calculating whether the company is doing well or not. Having high percentage of market share just for the sake of having it is never enough. For example, if the company has 60% share of a market but still loses money instead of earning it, it surely isn’t a successful company.