4.04 – Building A Market Share Strategy
Scaling your business is essential for improving your ability to compete with larger, established brands and increasing your market share. Market share represents your sales as a percentage of total sales for your product category in your market. For example, if you sell $2 million worth of widgets and the global market for widgets totals $20 million per year, your market share is 10 percent. Simple, right? Well, there’s more to it.
Here are some insights on understanding and increasing your market share.
Define Your Metrics
Before determining your market share, identify the metrics that matter most to you. Is it better to measure market share by revenue, units sold, or some other metric? Choose what makes the most sense for your product and the data you have access to.
Establish a Benchmark
To effectively increase your market share, you need an accurate picture of your current position. Here’s a simple method for estimating market size and share:
1. Estimate the number of customers in your market
Using resources like Statista or D&B Hoovers, you can get precise insights on market size, sales, and industry leaders.
2. Estimate average annual purchases per customer
Check your sales records or industry research for data on annual sales volume per customer and year-over-year growth.
3. Calculate the total annual market size and divide by your sales to get your share
For example, if you sell specialty tea, and 75 percent of wholesalers handle lower-quality teas that don’t compete directly with yours, calculate your market share against the 25 percent of sales for similar teas. Focus your resources on capturing this narrower market share rather than the total category.
Understanding your product category is crucial. If you don’t know where your product and brand fit into the market, developing a strategy to increase market share will be challenging. Missteps can lead to wasted resources and make it difficult to catch up with better-executed brands.
Do the Maths
If your goal is to increase market share by a specific percentage or dollar value, calculations are necessary. For instance, if your tea store in Shanghai aims to increase its market share by 1.5 percentage points, and each point of market share is worth $40,000 in annual sales, you might need to spend an additional $25,000 to achieve that 1.5 percent gain. Success could mean an extra $60,000 in sales. Adjust these figures based on your business and market specifics.
To be cautious, discount projected gains by a risk factor (e.g., 25 percent), reducing your projection from $60,000 to $45,000. This approach helps manage expectations and avoid overestimating potential gains.
Be realistic about the time and risks involved in reaching market share goals. Calculate the extra monthly costs for marketing and distribution changes, and compare them with projected monthly sales increases. This comparison highlights potential risks and gains. Allow at least six months before assessing a new initiative’s success or failure.
Market share provides a straightforward way to compare your progress against competitors over time. If your share drops, you’re losing ground; if it grows, you’re gaining. It’s that simple.
Setting Realistic Goals
Base your goals on realistic, actionable items you can measure. For example, if your goal is to increase market share from 5 to 7 percent with a product upgrade or new promotion, ensure you have metrics in place to attribute any growth to those actions. This way, you’ll know what’s working and what isn’t.
By carefully defining metrics, establishing benchmarks, and calculating realistic goals, you can effectively develop and implement a market share strategy that drives growth and keeps you competitive in your industry.
