Market Share, key terms explained

by Startacus Admin

Market share is a term that we hear bandied around a lot these days, especially on TV with the advent of entrepreneurial themed shows such as Dragons Den and The Apprentice. 

There is a reason for this prominence;

When someone is discussing market share, they are talking about competition; about where their product stands in relation to its market, how much of their potential has been realised and who stands in their way. They are demonstrating that, not only does their product / service have value, but that they, as an entrepreneur have a very clear and comprehensive understanding of the industry in which they operate.

Whilst you might not be lining up in front of a roomful of dragon investors any time soon, it’s important that you have a firm grasp of the facts in relation to your market; it’s just good sense.

What is Market Share?

Market share is essentially the size of your business in relation to the total size of the market, whether it is on a local, regional, national, or global scale, over a certain period of time. For most small and medium sized businesses, the total size of the global market is fairly irrelevant; what really matters to them is a share of their target market.

Usually expressed as a percentage (hopefully a large one) market share is calculated by taking the company's sales over a particular period of time and dividing it by the total sales (or sales within your target market) for the same period. If your business has numerous products or services and you would like to differentiate between them, you can spend some time with a calculator or abacus and work this out.

Market size is not the same as potential or projected market size; it can only be calculated definitively after the event e.g. at the end of the year when reliable figures become available.

It is important to remember that market size is constantly changing, and every year some will grow rapidly whilst others plummet, so it is really important that you use the most accurate figures as possible when working out your market share.

What is your Share of Customer?

Also known as ‘share of wallet’, share of customer refers to the proportion of spend that you manage to capture from your customers, compared to what you could capture. Unlike market share it can be rather tricky to calculate since it is based on objective assumptions about how much an individual is willing to spend on particular products / services, and indeed what products or services said person would purchase, given their availability.

If you were running a cupcake shop for example, you might wish to increase your ‘share of customer’ by also offering coffee / tea as an additional product.

Knowing your current share of customer will give you an indication of how well you are managing to utilise the opportunities for maximum sales and decide whether or not new strategies are needed to increase your share.

It can also be very useful to do a little investigative work to discover how your competitors are managing their share of customer, and perhaps pick up a few is on how you can increase your takings.

What is Share of Opportunity?

This is an even more complex derivative of Market Share that refers to the people who could, but don’t, buy products and services like the ones you sell. It is a measure of your potential market and thus is subject to the same assumptions as your share of customer, but can be even trickier to calculate.

It becomes an important measurement when considering the introduction of an innovative / unusual / niche product or service as it will allow you to make predictions about the level of custom that you can expect to see.

Here you need to examine what your product / service offers to customers on a most basic level, and assess what proportion of people will have the need / desire for this. It should help you to get a very general idea of your share of opportunity and may indicate the level of business that you might feasibly expect.

Hopefully you have found these little titbits useful. Don’t forget to check out some of our other recent posts on the subject on small business marketing including;

Who is your customer?

Expert marketing tips for startups

Pricing the goods and services of your small business

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Published on: 14th January 2015