From large corporations to small businesses, everyone understands a marketing strategy is needed to help drive brand growth and outperform the competition. What you might not know is that more advanced marketing strategies typically include ways to measure your performance against others in your industry. One way to do this is to calculate your market share.
Even if you see yourself as a smaller competitor within your industry, it’s still important to understand your business in the overall market. In this guide, we’ll explain why market share is important to every small business owner and provide strategies for gaining a larger market share — helping you generate more profits.
What is market share?
Market share is the percentage of an industry’s sales that a company owns. In other words, it’s your company’s total sales in relation to the rest of your industry. Understanding market share provides businesses of all sizes with one of the most reliable means of tracking their profitability and success in the industry — or giving them an early warning sign that it’s time to change things up.
To calculate your entire market share, you take the number of your total sales within a given time frame and divide it by the total number of sales made in your industry during that same period. This will tell you what percentage of sales made in your industry went to you.
As a simple formula, this looks like:
Market Share = Your Company’s Revenue (Sales)
Entire Industry’s Revenue (Sales)
For example, say you’re a freelance fashion blogger who earned $60,000 over the last year. You find that for the same year, there were $10 million in sales for freelancers completing the same type of work. By dividing $60,000 with $10 million, you end up with 0.006 or 0.6% when multiplied by 100, indicating that you own 0.6% of the market share.
It’s important to note that you can limit the industry market size depending on what makes the most sense. For example, if you are a plumber, you likely only care about competition within your geographic area. Calculating the percentage of sales across the country, or even in your state, compared to yours will provide you very little actionable information. Instead, when calculating your market share, you’ll want to use the total number of sales completed in your service area.
Note that this formula is valuable even if you haven’t earned a profit yet because it can help you outline an effective pricing strategy. If you have a new company that has not started generating income, you want to perform a market analysis that tracks:
- Your market volume, or the number of people who’d be interested in your product
- The number of competitors in the industry
- The rate of growth in the industry
- Your goal of how many sales you hope you make (which you can begin to track using your business plan)
What is a gained market share?
Since market share measures how well your business performs compared to your competitors in the industry, it provides a valuable measurement for success. Gaining a market share means that your company is growing faster than the industry, and more customers are electing to select your business over your competitors. This is driven by a strong brand reputation and dedicated business practices.
Using the freelance fashion blogger example above, you can use this same market share calculation in future years to identify any market share gains. In the next year, you generate $70,000, and the total number of sales across the industry increases to $11 million. Using the same formula, you’ll notice an increase in market share to 0.0064 or 0.64%, indicating growth in the space.
Early-stage small businesses want to lay the groundwork for growing their market share. Metrics such as brand reach or site traffic don’t necessarily translate to financial success and provide little information without the context of market share. Understanding how your company performs compared to the competition provides more information about how customers see the organization and your ability to drive interest.
Increasing market share also indicates that your brand is driving more sales and establishing itself in the industry. There are strategies that businesses of all sizes can use to build a high market share to gain a competitive advantage and increase profits.
3 Strategies to Increase Your Market Share
Increasing your market share positions your business for growth and profit, making it an excellent way to measure your company’s success. However, boosting your market share doesn’t happen by accident. It requires a coordinated and carefully planned strategy to increase customer trust in your brand and their desire for your product. It requires you to have an excellent understanding of your unique space, the current market, your competition, and your customers — again, things you can put on your radar by developing a business plan.
There are three simple, core strategies that you can implement to increase your market share and maintain strong business growth:
- Establish your niche and unique offering
- Innovate on your current services and products
- Engage current customers
1. Establish your niche and unique offering
When people hire you for a job, they want to know that they’ve turned to an expert. Establishing your niche or market segmentation can help you build credentials in a concrete area and create a loyal customer base. You’ll be able to demonstrate to others that you have experience in their industry and a portfolio of similar past jobs that indicate that you can help them solve their problem. Whether you are a copywriter or a carpenter, customers like to see that you’re a market leader who has completed jobs like theirs before and excelled.
Of course, when you just begin a business and need to search for new customers, it can feel challenging to identify where your niche lies. If you haven’t established your niche and the unique offerings that you can present to attract customers, consider the answers to the following questions.
- Where do your passions, experiences, and expertise lie?
- How can you use your expertise to solve customer pain points? What products and services can you offer that will fill a need?
- Who else is in the industry, and where do they fall short? For example, do you notice that people in your area complain about trying to hire roofers? Does the content created for businesses in an interesting industry appear weak and unclear?
The answers to these questions will give you a good start.
2. Innovate on your current services and products
Being able to innovate is the key to moving to the forefront of your industry and hitting profitability. One of the most famous examples of big companies leveraging innovation is Apple. With the iPhone, the company created a cutting-edge phone that easily outpaced the competition. The company’s ability to use this innovation to increase market share immediately became apparent.
Of course, every business isn’t Apple, but how can you replicate this on a smaller scale? To successfully capture opportunities for innovation, you need to see where gaps lie in the experience of the customer base and create a solution to solve it. It requires carefully examining modern trends in the industry, engaging directly with customers to see where their pain points are not yet solved, and creating new ideas and solutions to solve these problems and help propel your business forward.
Research by McKinsey that looked at over 2,500 executives to determine what drove innovation found that the companies who capture these openings get their start by aspiring to innovate. In other words, when your general outlook is one focused on evolving and adapting to change, this can be just what your small business needs to innovate, close gaps, and start taking market share from your competition. This outlook also prevents people from getting stuck in the status quo and invites them to challenge themselves to develop new ideas and solutions to customer problems.
Is getting creative not your strong suit? Let your passion for your business guide you here. Channel it into focusing on watching the trends in your specific region and niche while taking note of what occurs elsewhere in the country in your industry. Knowing what your competitors do and the needs that customers still have will naturally inspire you and get the creative juices flowing. Looking outside your area to see what businesses do there can also provide you with insight for what to incorporate into your business.
3. Engage current customers
Think about the customers you currently have. A mere 5% increase in customer retention of those customers can translate to a 25% increase in profits. Encouraging customer loyalty will increase your profit margins and play a vital role in expanding your market share. Satisfied customers — in addition to buying from you repeatedly — recommend your business to others, allowing you to tap into word-of-mouth references.
Repeat customers play a vital role in any industry. Plumbers or electricians want to know that their customers call them automatically if a problem arises. A graphic designer benefits from customers who call them when they want to update their logo or adapt it to a new situation. Consultants know that providing excellent recommendations for a client should result in the customer reaching out again when they need to take their business to the next level. The key lies in understanding how to retain engagement with customers after the purchase without becoming pushy or demanding.
Consider these strategies when it comes to engaging and retaining your customers:
- Show that you genuinely care about the customer experience by soliciting feedback personally and letting them know how you act on it.
- Rather than inundating customers with communication, focus on the most valuable moments. Holiday season deals or periods when you estimate they will need your services can be a good place to start. For example, an automaker who sold a car might email past customers around the time they likely need service issues taken care of.
- Build a community around your business. Encouraging people to follow and openly communicate on Facebook and LinkedIn can be a great way to get started. This allows you to entice people to communicate and show them regular updates without pestering.
- Breathe some personalization into your efforts. For example, sending people special promotions for their birthdays or other anniversaries shows they matter and you’re not just blasting them with the same generic message being pushed on everyone.
Learn how to grow your business
Building a higher market share for your business might not be the first priority, but it should take center stage. As your business grows, you want to stay in the mindframe of trying to capture more of the total market so that you create a recognizable and trusted brand. As you begin to build your business, consider the growth strategies we’ve listed above, and see how the experts at ZenBusiness can help you move forward with other ways to run and grow your business.