Sometimes it can be surprising to see how you compare to others. But in business, comparisons go beyond standing in awe of your neighbor’s huge house or your friends’ impressive running speed. Knowing how you compare to others is more than just interesting, it’s a necessity.
Your company’s market share reveals the competitiveness of anyone in your industry in relation to your total market. But before you can calculate your market share (or get a market research tool to do it for you) you need to figure out what you want to measure and apply the right market share formula.
Which market share formula should you use?
When people talk about market share they’re usually talking about the portion of the revenue generated compared to the total revenue for your industry. For example, if fitness equipment sales amounted to $1 million, and your company’s sales totaled $100, then your market share would be 10%. This calculation is based on value.
Another option would be to determine market share by volume.
Instead of measuring the percentage of financial value, you would assess it by the total number of units sold.
The car industry is a great example. Look around to see how many Toyotas are cruising the city compared to Ferraris. In terms of unit sales, Toyota likely outperforms most of its competitors in the car industry. On the other hand, one Ferrari has the same valuation of about 10 Toyotas.
In this case, the next step would be to look at both value and volume to figure out how to beat the competitive benchmarks in this type of market. Because we aren’t comparing apples to apples. In any diverse industry, such as cars, the difference between the two could be a major consideration that you shouldn’t overlook. This process can also be helpful when comparing a small business to a major player in an industry.
Benchmarking your market share
If we stick to the same example of the car industry, we can’t ignore that Toyota and Ferrari aren’t direct competitors. So how useful is it to benchmark their market share or even determine it relative to the entire car market? Analyzing their share of their specific market segment is more representative of a particular company‘s brand recognition as opposed to their relation to each other.
Each may own the largest chunk of a specific car market (luxury vs. economy cars), making them both market leaders.
The ultimate goal for most companies is to lead their market and, to get there, you’ll need to keep a close eye on how you measure up to the current leaders in your market.
To benchmark against your industry leaders, you’ll calculate your market share relative to that of the market leader. You can do the same with other competitors and monitor your progress over time. Determining the relative market size is an effective tactic to evaluate your position among competitors.
Knowing your digital market share
In the digital world, the rules of the market share game are a little different.
Not all websites generate sales or sell units, but they still own their share of the market. To identify your portion and evaluate your strength in the digital world, you’ll measure traffic. Traffic resents your market share in the online market because traffic usually equals revenue for online companies. You can get even more information on this by looking at specific pages like the checkout page.
Either way, the concept remains the same, and the race for the biggest slice of the online traffic share pie is only getting tougher.
How to calculate market share [4 formulas]
Before choosing which concept and formula you want to use, clearly define the market or a segment you want to measure. If you only target or sell in a specific region, your goal may be to become a local market leader rather than a global powerhouse.
Also, don’t forget to determine the period of time you are planning to measure. Usually, you evaluate market share over a year, but monitoring quarterly can help you identify seasonal trends.
1. All about revenue: Calculation of market share by value
Determine the overall revenue of your industry for the relevant period in the relevant market.
You then divide your total market sales by that of the entire market and multiply by 100. The result represents your percentage of the market in terms of sales revenue. If you’re not sure where to collect this information for the total market, public companies report their revenue and market share in filings and annual reports. You can also check trade associations or industry indexes.
In markets where pricing between competitors is similar, calculating per volume would yield very similar results. You can even calculate your competitors’ revenue market share if they are public companies and have revenue information available.
2. Calculation of market share by volume
For industries with significantly varying price points, the calculation by units can lead to a different outcome.
A volume-oriented approach is useful for retailers competing for shelf space or anyone evaluating a discount strategy. The formula for calculating market share based on units is basically the same. You divide the number of your total sales per unit by the total units sold in the market.
We recommend calculating both your market share by value and volume to get the best and most accurate insights.
3. Calculating market share by traffic
To determine your digital market share, you’ll substitute revenue or units with traffic.
You’ll need a powerful web analytics tool that can provide reliable traffic data you can filter by industry and other categories. Take your traffic and divide it by the overall traffic in your industry.
By doing this, you can determine how much of the overall traffic in your industry reaches your site. You can even zero in on specific domains, like the checkout page. Similarweb has the most accurate and real-time traffic share data available. The platform tracks over 100 million websites and 4.7 million apps, providing a real view of any company’s traffic share in the digital world.
4. Calculation of relative market share
You can analyze and correlate data from different market segments and track them over time. Many analysts also calculate relative market share to benchmark directly against an industry leader. You determine your and their market share and add them into the formula.
To dig deeper, do the same calculation for other companies in your industry and turn the process into an ongoing benchmarking strategy.
Getting the insights you need for growth
If you aren’t interested in crunching numbers, it’s helpful to use a tool that gathers the most accurate data and does the work for you – instantly. Similarweb’s research intelligence tools show you market share for traffic, engagement, and conversion data per industry.
You can filter exactly what you need to see. Choose the relevant category, segment, or competitors. Determine the time frame you want to analyze and correlate with additional metrics. This feature calculates your own traffic share and allows you to compare, benchmark, and keep monitoring it over time with ease.
With accurate data and trusted formulas, you can turn your market share calculations into a report with actionable advice and key takeaways, rather than just a number to analyze.
This blog post was written by Ruth M. Trucks.
The post is subject to Similarweb legal notices and disclaimers.
How is market share calculated?
Market share is calculated by value or by volume.
What is the formula to calculate market share?
(Your total units sold/Total units in the market) x 100
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