Whether you’ve owned a business for 12 years or have just launched one this year, you know how hard it is to be successful. The U.S. Bureau of Labor Statistics estimates that half of all businesses fail within their first five years, and five years after that, only around one-third of companies remain.

To succeed in business, you need to understand the market you operate in. A large part of that means understanding your company’s market share. But what is market share? 

Keep reading for a guide that will help you understand what market share is, as well as why you should care about it. 

What Is Market Share?

Every business operates in a different industry, and market share refers to how much of that industry a company controls. Depending on the business, companies may calculate market share on the national, regional, or local level.

If a home furnishing company sells $6 million worth of candles in a market where consumers bought $100 million worth of candles, then the market share for that company is 6%. 

Depending on the scale of a company, 6% can be a good or a bad number. If it’s a local company, then it shows a solid level of control over a particular region. On the other hand, a national company with a 6% market share might be disappointed. 

How to Calculate Market Share

If you couldn’t tell from that example, market share isn’t difficult to calculate.

To figure out the market share that your company has, simply take your company’s sales over a period of time, then divide them by industry-wide sales over that same time period.

However, remember to pay attention to industry segments, as opposed to the market as a whole. While you may be targeting stay-at-home Bohemian moms in their 40s, your competitors may not be. Being too general may provide you with data that does nothing. 

Why Is It Important?

So why is calculating market share important, and why should you devote the time and resources to do it?

Figuring out your company’s market share gives you a clear idea of how your company is doing in the industry. You’ll be able to see if your competitors are outperforming you, which can help you figure out why that might be happening.

Being aware of your current market share also provides you with a clear indicator to know whether or not your business is thriving or declining. If you see radical market share shifts, you can take that as a sign that you need to start doing something differently.

Stay Informed and Ahead of the Competition 

While there are many important metrics to consider in business, market share is one of the most important. Understanding it will allow you to better understand your current role in the market while motivating you to expand that role in the future. 

Do you have a better understanding of the market share definition? If you do, make sure to check out some of our other articles for more informative business guides and tips.