2 Effective Ways to Calculate Market Share to Help Businesses Break Through

Market share is a crucial indicator that helps businesses clearly see their competitive position in the market. But what is market share and how should it be calculated to accurately reflect reality? This article will help you understand everything from the concept to its application.

I. The Concept and Significance of Market Share for Businesses

1. What is market share?

Market share is a term that refers to the percentage of product/service consumption that a business holds in the market. Market share is directly proportional to a company’s revenue. A high market share means that the business also has more competitive advantages in the market.

In other words, market share is clearly shown through the products and services consumed from a business compared to the total products consumed in the entire market. Understanding and grasping how to calculate market share is fundamental and extremely important knowledge that every business and leader needs to have.

2. The significance of market share for businesses

From the definition, it’s clear that market share plays a crucial role as it is directly proportional to a company’s revenue. Additionally, understanding how to calculate market share has the following key roles:

• Helps businesses clearly understand their growth rate

In business operations, understanding the rate of growth and development not only helps leaders get a comprehensive view of the situation but also find suitable directions.

A low market share value means the business is growing slower than the dynamic market. And if a company’s market share is low, its growth rate is still slow, and managers need to build more suitable business and marketing strategies.

• Helps businesses know their competitive ability in the commercial market

By effectively determining market share, a business can apply how to calculate market share and know the percentage of the market it holds, thereby recognizing its position in the market and its competitive ability against other rivals.

It is from this market share percentage figure that a business can implement more effective marketing and business campaigns and strategies.

• Supports businesses in supplementing human resources, resources, and increasing development motivation

If a company’s market share is low, it needs to plan to supplement resources to implement campaigns to increase market share. This is also an opportunity for the business to identify competitors and the strengths and weaknesses of its competitive strategy.

II. 2 Simple, Standard Formulas for Calculating Business Market Share

1. How to Calculate Absolute Market Share

There are 2 formulas for calculating absolute market share that businesses can apply:

Method 1:

Method 2:

Example of calculating absolute market share:

• Company A sells English courses
• Total market sales are 1000 courses
• Company A sells 200 courses

=> Company A’s market share is (200/1000)*100 = 20%. In other words: Company A holds 20% of the English course market share.

2. How to calculate relative market share

Calculating relative market share shows the scale and advantage of a business compared to its competitors. By calculating the business’s market share relative to its competitors, executives can devise appropriate strategies to compete and expand their market share.

A business can calculate its relative market share using one of the following 2 formulas:

Method 1:

Method 2:

In addition to applying the method for calculating relative market share, businesses should note the following:

• If the relative market share is greater than 1, the competitive advantage belongs to the business
• If the relative market share is less than 1, the competitive advantage belongs to the competitor
• If the relative market share is equal to 1, the competitive advantage of the business and the competitor is the same.

III. Classifying Market Share in Business

Market share is not calculated in just one way; it can be classified according to various criteria. Classifying market share helps businesses clearly understand their position from multiple perspectives: from market scope and customer segments to individual product lines.

• By calculation formula
  • Absolute market share: Measures the ratio of a business’s revenue or output compared to the entire industry. This is the most common way to determine market dominance.
  • Relative market share: Compares a business’s revenue or output with its largest competitor. This indicator shows the direct competitive position.
• By geographical scope
  • Global market share: Reflects competitiveness on an international scale, often applied to multinational corporations.
  • National/regional market share: Measures the level of dominance within a specific country or territory, suitable for businesses focused on the domestic market.
• By customer or product segment
  • Market share by product line: For example, what percentage of the high-end smartphone segment does the Apple iPhone occupy.
  • Market share by customer group: Segmented by B2B, B2C, young customers, high-end customers, etc., to determine which target audience the business is strong in.

Classifying market share from these perspectives helps businesses accurately identify their strengths and weaknesses, thereby choosing a more suitable development strategy.

IV. Considerations When Calculating Market Share

Applying market share calculation methods to a business involves more than just using a formula. Business leaders need to identify the necessary factors before applying the formula for calculation:

• Research the market of the field you or your business is interested in
• The time period for calculating market share should be monthly or yearly, as market share is the percentage of a business’s presence in the entire industry over a specific period.
• The units of the data used to calculate market share must be consistent and from the same time period

Therefore, before calculating market share for a period, businesses should clearly define the necessary factors mentioned above to avoid unnecessary errors when applying the methods for calculating relative market share and absolute market share.

V. Method for Determining Market Share Growth Using the BCG Matrix

The methods for calculating absolute market share and relative market share are the foundation for evaluating a business’s market share growth. To correctly assess a business’s market share growth, the Boston Consulting Group (BCG) matrix has been and continues to be widely trusted and used by many managers.

This is a method that can be used to examine growth opportunities through market share. The model is divided into four quadrants: Stars, Question Marks, Cash Cows, and Dogs, arranged on a coordinate system.

With the division into quadrants and symbols of the BCG matrix, businesses can apply market share calculation methods and easily observe the development status as well as the current situation of product lines launched in the market. One of the key points of this model is identifying the appropriate market segment. You can find more information about market segmentation at:

VI. Increase Market Share with the Ultimate 4C Marketing Strategy

Whether a business applies the absolute market share calculation method or the relative market share calculation method, it always needs to find ways to increase its market share.

The 4C model in Marketing, developed by Robert F. Lauterborn in 1990, is an extension of the 4P Marketing Mix model. The 4Cs in Marketing focus primarily on customer-related factors.

The 4C strategy is applied so that businesses can better understand their customers, thereby successfully building marketing campaigns focused on meeting customer needs.

1. Customer Solutions

Instead of focusing too much on the product and the business or just applying the market share calculation method mechanically, in this first C, you should focus on customer needs with factors to consider such as: Product/service value, competitive advantage, and market positioning.

The best way to identify target customers and their needs is through primary and secondary market research. This allows the business to understand exactly what customers want, thereby making it the focus of the company’s product strategy.

2. Customer Cost

Customer cost is not just the product price but also includes the time and location where the customer buys the product or orders the service, as well as operating costs, usage costs, fuel costs, etc.

In this case, the business needs to consider factors such as: Affordability, satisfaction, and value, and answer questions like: Is the price suitable for the customer? What is the total actual cost the customer has to pay? Is it reasonable?…

3. Convenience

Factors to consider: Barriers to purchasing and selling online. This is a factor that has a definite influence on the customer’s purchasing decision.

With this factor, the business needs to consider the following points: Does the customer encounter any difficulties when making a purchase? Is the product/service description detailed enough? If there are questions during the purchase, how is customer support provided?…

4. Communication

Communication always plays a decisive role in business marketing activities. Without communication, the 4C strategy will not be effective. In this case, the factors to consider are customer engagement level, WIIFM (What’s in it for me), and social media.

With the development of media, businesses can easily implement this marketing strategy via the internet. On Facebook, Instagram, and similar platforms, marketers can create surveys, track likes, shares, reviews, etc.

Thus, by applying the 4C Marketing model to focus on customer benefits and needs, businesses can quickly and sustainably increase their market share.

VII. Comparing Market Share with Other Business Metrics

In marketing and business administration, market share is just one of many important metrics. Besides market share, managers also rely on many other indicators to evaluate operational efficiency and competitive position. Understanding each indicator and its relationship with market share helps businesses get a more comprehensive view.

Common business metrics besides market share:

• Revenue: The total value of sales or services a business generates in a specific period.
• Profit: The difference between revenue and costs, reflecting true business efficiency.
• Target market: The group of customers a business chooses to focus on serving.
• Niche market: A small, specialized segment, often with few competitors.
• Industry growth rate: The average growth rate of the entire market over a specific period.

Comparing market share with other metrics:

• Market Share and Revenue: Revenue measures the “total amount of money” a business earns from sales, while market share indicates what percentage of the entire industry the business occupies. Revenue can increase, but if the industry grows faster, market share will still decrease.
• Market Share and Profit: Profit reflects financial efficiency, while market share reflects competitive strength. A business can increase its market share by lowering prices, but this can lead to a decline in profit.
• Market Share and Target Market: The target market is the “slice of the pie” a business wants to serve, while market share is the level of dominance within that specific slice. A brand can have a small market share in the overall industry but dominate its chosen target market.
• Market Share and Niche Market: In a niche, market share is often high due to few competitors, but the market size is small. This shows that a high market share does not necessarily guarantee large revenue.
• Market Share and Industry Growth Rate: If a business grows slower than the industry, its market share decreases; conversely, if it grows faster than the industry, its market share will expand.

Market share is an important indicator for assessing competitive position, but it cannot fully reflect a business’s health. Only when combined with other metrics like revenue, profit, target market, or industry growth rate can a business get a complete picture to make the right strategic decisions.

VIII. Challenges in Expanding Market Share

Expanding market share is always an attractive goal for every business, as it means capturing customers, strengthening competitive position, and increasing revenue. However, in reality, the process of increasing market share is not easy. Businesses must face many barriers, both internal and external.

Common challenges when expanding market share:

• Intense competition from rivals
  The market often has “big players” with strong financial resources, distribution systems, and brands. Competing for market share will consume significant marketing costs and require a distinct strategy.
• Price wars
  Many businesses choose to lower prices to attract customers. However, this strategy can lead to reduced profit margins, affecting long-term financial health.
• Risks of expanding too quickly
  When a business increases production, expands distribution channels, or enters new markets too quickly, its management, operational capabilities, and service quality may not keep up, leading to a risk of crisis.
• Changes in customer behavior
  Consumer trends today change constantly. A product might have a large market share at present but can be quickly replaced if the business fails to innovate in time.
• Pressure from policies and legal regulations
  Some industries are tightly controlled by the government. Changes in laws, taxes, or standards can affect the ability to expand market share.

Expanding market share requires not only capital and a strong marketing strategy but also management capabilities, flexibility in the face of change, and the ability to innovate. Only businesses that can balance growth with sustainability can maintain a long-term competitive advantage.

Market share calculation is one of the crucial factors businesses need to determine to clearly understand their product’s position in the market. In the article above, we have provided you with the most useful information about market share and its calculation formula.

Additionally, you can effectively monitor and execute Marketing campaigns with the 1Office CRM software solution. The MARKETING feature within the CRM (customer care) module will help businesses optimize the execution of product/service marketing campaigns, delivering an excellent user experience.

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