How To Calculate Market Share

Market share is the portion of total demand that flows to you. Measured in revenue it is your sales divided by everyone's sales, which makes it the cleanest available answer to how well you are doing against competitors.

The definition of the market is the hard part, and it is a decision rather than a calculation. A café might be 30 percent of its street, 3 percent of its suburb and a rounding error in national coffee, and all three are true at once.

Revenue share and unit share differ whenever prices differ. A brand selling fewer units at a higher price can hold a smaller unit share and a larger revenue share, and quoting whichever flatters the story is a well worn trick.

The same discipline applies to periods and geography. Comparing a fiscal year against a calendar year, or one region's sales against a global market, produces a number that is arithmetically fine and analytically useless.

A share figure on its own says very little. The informative number is the change in share, because it separates your performance from the market's. Growing 20 percent in a market growing 9 percent is winning; growing 20 percent in a market growing 30 percent is losing ground.

That comparison is why share is normally quoted in points. A move from 3.6364 percent to 4 percent is a gain of 0.3636 percentage points, and saying it that way avoids the ambiguity of a percent of a percent.

The two growth rates behind the share move are worth computing separately. Revenue growth of 20 percent against market growth of 9.0909 percent is the whole explanation of the share gain, and neither number alone would show it.

Share can be computed on any base: revenue, units, customers, active users or capacity. Each answers a slightly different question, and mixing bases between periods is the most common way a share series quietly breaks.

Relative share is the comparison to the largest player rather than to the whole market. A firm with 4 percent against a leader at 12 percent has a relative share of a third, which frames the competitive position differently.

Share of wallet is the customer level version: how much of a given customer's spending in the category comes to you. It is often more actionable than market share, because existing customers are cheaper to grow than new ones.

Penetration is not the same as share. Penetration counts how many people buy from you at all; share counts how much of the category's money you capture. A brand with wide penetration and low share has a frequency problem.

For the running example, revenue of 48,000,000 in a market of 1,200,000,000 is 4 percent. The year before, 40,000,000 in a market of 1,100,000,000 was 3.6364 percent.

That is a gain of 0.3636 share points, achieved by growing 20 percent while the market grew 9.0909 percent. Almost all of the share gain comes from outgrowing the market rather than from the market itself.

Each share point in this market is worth 12,000,000 of revenue, which is the number that turns a share target into a sales target.

The remaining market, 1,152,000,000, is the honest size of the opportunity, and it is also the number that reveals how much of the market is held by everyone else rather than by you.