What is 'Market Share'
Market share represents the percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.
BREAKING DOWN 'Market Share'A company's market share is its portion of total sales in relation to the market it operates within. For example, if a company sells $100 million worth of tractors a year domestically, and the total tractors sold in the United States is $200 million, the company's US market share for tractors would be 50%.
The Importance of Market Share
Investors look at market share increases and decreases carefully, because they can be a sign of the relative competitiveness of the company's products or services. As the total market for a product or service grows, a company that is maintaining its market share is growing revenues at the same rate as the total market. A company that is growing its market share will be growing its revenues faster than its competitors.
Market share increases can allow a company to achieve greater scale in its operations and improve profitability. Companies are always looking to expand their share of the market, in addition to trying to grow the size of the total market by appealing to larger demographics, lowering prices, or using advertising.
The calculation for market share is usually done for specific countries, such as Canada-only market share or US-only market share. Investors can obtain market share data from various independent sources, such as trade groups and regulatory bodies, and often from the company itself. However, some industries are harder to measure with accuracy than others.
An Example of Market Share
All multinational companies measure success based on the market share of specific markets. China has been an important market for companies, since it is untapped and is growing. Apple, Inc., for example, uses its market share numbers in China as a key performance indicator for the growth of its business. However, the numbers were not good in the second quarter of 2016. Apple saw iPhone sales in China dip to an 11% market share in May 2016. This decline in market share stemmed from a 26% decrease in the company's revenue for the first quarter of 2016, the first time it's seen a quarterly decline since 2003.