Market Share

Market Share Calculator

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1. Market Share Calculation Example

Suppose we’re tasked with calculating the market share of Tesla (NASDAQ: TSLA) in the global automotive market.

While Tesla is a market leader in the electric vehicles (EV) market by a substantial margin, especially in the U.S. market, its share is on the lower end in terms of global vehicle sales.

Per automobile sales figures reported by Cox Automotive, the total vehicle sales globally in Q-1 of 2023 was 3.5 million.

• Global Vehicle Sales = 3,522,703

The estimated number of vehicle sales by Tesla in Q1 of 2023 was approximately 181k, while General Motors (NYSE: GM) sold an estimated 587k vehicles.

• Tesla (TSLA) – Total Vehicle Sales = 180,993
• General Motors (GM) – Total Vehicle Sales = 587,020

By dividing the total vehicle sales by each automobile manufacturer by the global vehicle sales figure, we arrive at 5.1% and 16.7% in market share for Tesla and General Motors, respectively.

• Tesla (TSLA) – Market Share (%) = 180,993 ÷ 3,522,703 = 5.1%
• General Motors (GM) – Market Share (%) = 587,020 ÷ 3,522,703 = 16.7%

2. Market Share Analysis Example

From the prior section, we’ve determined that the market share of General Motors (GM) in the global automobile industry is over 3.0x that of Tesla (TSLA) as of the start of 2023.

The relative market share of Tesla (TSLA), compared to General Motors (GM), is 30.8%, which represents the proportion of market share belonging to Tesla in relation to the market leader, General Motors.

• Tesla (TSLA)  – Relative Market Share (%) = 5.1% ÷ 16.7% = 30.8%

How Does Market Share Impact Profitability

Growing market share is directly tied to achieving scalability, which in turn improves profitability, i.e. economies of scale and network effects.

In short, market leadership and sustainable long-term profits go hand in hand, as both attributes stem from the same underlying drivers.

There is a clear connection between market share and profitability, as market leaders tend to be more profitable than those with low market shares.

Companies attempting to obtain more market share are, more often than not, spending cash at a rapid pace – whereas mature companies possess more established business models and operate with greater efficiency.

Often, companies with stable, long-term market leadership that have been able to maintain their position consistently are perceived to have an “economic moat.”

How to Forecast Revenue Using Market Share

The current market share of a company and the market size are important pieces of top-down forecasting, which is an approach used to project sales using a company’s total addressable market (TAM) and a market share assumption.

The formula to forecast revenue using the top-down method multiplies the estimated market size (i.e. total addressable market, or “TAM”) by a market share assumption.

Where:

• Market Size ($) → The total revenue opportunity in a particular market at present.
• Market Share Assumption (%) → The projected percentage of the total market assumed to be obtained by a given company.

If a company’s market share has been growing in recent years, its current and projected growth rate is likely outpacing its industry peers.

Conversely, if a company’s goal is to maintain its existing market share, it must continue to grow at the same rate as the total market.

How to Increase Market Share

The notion that offering the most innovative products and services mix can increase market share certainly has its merits.

Generally, capturing more market share arises from delivering the most value to customers and providing the leading user experience available in the market.

But there are exceptions, such as marketing-oriented industries, where competition is based on intangible factors such as reputation and branding, rather than product quality.

Still, strategizing around methods to offer distinct value propositions that satisfy unmet customer needs in the target end market is a reliable route toward obtaining market leadership.

Companies with differentiated, innovative offerings can grab a higher percentage of a market more easily as customers migrate from their competitors that might lack technical capabilities.

How to Protect Market Share

The common methods employed by companies to protect their market share are as follows.

• Improve Customer Retention → Customer retention is arguably more important than new customer acquisitions when it comes to protecting market leadership, especially over the long run. A loyal customer base means recurring revenue and opportunities for upselling and cross-selling tactics. In short, an existing customer is easier to sell and convert than a new customer (and cheaper).
• Reduce Customer Churn Rate → On a similar note, companies must strive to reduce customer churn, which is a function of understanding their customers’ specific needs – i.e. insights enabling companies to serve those customers better. More specifically, the causes of past churn in customers must be identified and improved, or else the issue will only compound with time.
• Prioritize “Word of Mouth” Marketing → After building trust and loyalty with their customer base, companies can benefit from more reliable sales, as well as more organic growth and “word of mouth” marketing.
• Reinvest in Product and Service Capabilities → Companies must also continuously reinvest (e.g. capital expenditures, research and development) and be prepared to adapt to unexpected developments in the market, especially for those operating in markets at risk of disruption.
• Strategic Acquisitions → Another common defensive tactic is to acquire high-growth companies, which nowadays are usually technology-oriented. Instead of fending off the threat using internal resources, the decision by an incumbent to engage in M&A to acquire a smaller-sized company and integrate its technological capabilities into its current offerings can often be more profitable over the long term.

If market leaders become complacent and stop improving, it is only a matter of time before a different company disrupts the market to capitalize on the opportunity.

The downfall of Blockbuster (and the rise of Netflix) is one frequently used real-world case study of an incumbent refusing to adapt to changing consumer trends until it was far too late.