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.
To find an industry’s total revenue, you can use various online resources or reference the suite of industry reports produced and published by IBISWorld.
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.
Company market share example – Clarios
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In 2020, the Battery Manufacturing industry in the US is anticipated to generate $9.8 billion in industry revenue.
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Battery manufacturer Clarios is forecast to generate $2.6 billion in revenue in 2020.
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Putting Clarios’s revenue over industry revenue yields a market share of:
[Clarios 2020 revenue: $2.6 billion] / [Industry revenue: $9.8 billion] = 26.5% market share
So, this calculation tells you that Clarios has a 26.5% share of the US market for batteries in 2020.
What does market share tell you and why is it important?
Overall, calculating market share gives you insight into an industry’s concentration, competitive landscape and room for business opportunities. The level of concentration in an industry indicates the dominance of its top players. Knowing the concentration level provides greater insight.
Low Concentration
Top 4 Players = <40% of the market
- Lots of small players
- More self-employed
- Price takers
- Labor intensive
- Low barriers to entry
- Low international trade
- Need cash to grow
Medium Concentration
Top 4 Players = 40-70% of the market
- Major players but competitive
- If increasing, M&A activity likely occurring
- If stable, unexploited products/markets to be had
High Concentration
Top 4 players = >70% of the market
- Few players dominating
- Price setters
- High barriers to entry
- Mature > decline life cycle
- High regulation
- Strong brand
- Investing in smaller firms difficult
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.
- Low Concentration: ideal for private equity to get in the market and grow. With a robust management strategy and a sound business plan, a service-based business can become strong and profitable quickly.
- Medium Concentration: ideal for investors looking for the right fit - companies are likely to have a sound product, market and brand name. Potential profit haven.
- High Concentration: Lawyers, accountants and consultants may be needed for anti-trust legislation. Bank loan offices can ask if a small company can compete against larger producers.
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.
