Apr 16 2019
How to Calculate a Company’s Industry Market Share (and Why It’s Important)
From accountants to consultants (and professions between), knowing a client’s market share is essential to understanding their competitiveness, including the risks and opportunities, in their respective industry. For our investor friends reading this, market share is also a great illustration of just how much of the industry pie there is for the taking, or investing in.
What is market share?
A company’s market share is its industry-specific revenue measured as a percentage of the industry’s total revenue. Thus, to calculate a company’s market share, use the following formula:
(Industry-specific Company Revenue ÷ Total Industry Revenue) * 100 = Company’s Industry Market Share
The equation specifies industry-specific company revenue because some companies, especially larger ones, can operate in several industries. Taking their total consolidated revenue figure for only one of the many industries they operate in would yield an inaccurate, overblown market share.
Company market share example – Mars Inc.
Mars Inc. is a food conglomerate, operating in many food-related industries, such as confectionary and pet food. However, they’ve expanded outside the food industry into areas like animal care services. Let’s say we want to know Mars’ market share of the chocolate production industry in the United States. Mars’ total consolidated annual revenue as of 2017 (latest financial data available) was $35.0 billion. However, the company’s chocolate production revenue as of 2017 was estimated at $4.98 billion. The chocolate production industry’s total revenue was an estimated $18.06 billion in 2017. As a result, we would calculate Mars’ chocolate production industry market share as:
($4.98 billion ÷ $18.06 billion) * 100 = 27.6%
Determining a company’s market share gives you insight into the overall concentration level of the industry. In the case of the chocolate production industry, with Mars commanding nearly 30% of industry revenue, you can assume that the industry is highly concentrated as there are other big-name brands to consider, such as The Hershey Company, Ferrero Group, and Lindt.
What does market share tell you and why is it important?
The level of concentration in an industry indicates the dominance of its top players. Knowing the concentration level provides greater insight, as the following table illustrates:
Knowing and understanding a client’s market share relative to the level of industry concentration provides you with greater knowledge of the opportunities and challenges your client is facing. It also provides insight on how you can leverage those opportunities to help your clients.
Companies are constantly looking to increase their market share and grow the size of the total market to appeal to a broader customer base.
Using industry research to understand market share
Your ability to calculate and analyze a company’s market share will allow you to customize your products or services to fulfill their needs. IBISWorld’s suite of 1,300+ US-based industry reports provides the market share of the top 4 companies operating in an industry as well as analysis on the level of concentration and its influence on the industry.
Book a free demo to learn more about how IBISWorld industry research can help you determine and analyze market share for your company and your clients.