How important is it for companies to track the growth of their industry? More importantly, what role does the market or industry’s growth play when companies look at forecasting market share? Well, the fact is, companies must not only know how much their industry will grow, but they must also be able to adjust their sales forecasts to become a part of that growth. There’s no benefit to using stationary forecasting models that are stuck in time. Today's businesses must be proactive and become market experts. They must know what the market's growth means and most importantly, how they can lead that growth. Now the question becomes: How does a company account for their market's growth within their forecasting models?
Forecasting Market Share
As I was writing yesterday’s post about market share projection tips for small businesses, I suddenly realized that the end of the post immediately got me started on this entire subject. That post is predicated on showing how small businesses can determine the size of their market, their own market share, and how they can use simple steps to improve their market share.
In this post I’m going to continue on from yesterdays and elaborate on how companies can account for their industry’s growth when forecasting market share. First, it’s important to understand where companies can gather information about the growth of their market and the overall state of their industry. Here are some fantastic resources that companies can use.
- Industry publications
- Trade magazines
- Company & customer newsletters
- The internet
- A country’s labor statistics (US Bureau of Labor Statistics, Statistics Canada, UK National Statistics Publication etc.)
- The customers themselves
The above video explains how your company can use industry trade magazines and publications as a source of low-cost marketing. To read more, please go to: 5 Simple Approaches to Maximize Small Marketing Budgets
How do Companies Measure Market Share?
Most companies measure market share on units sold or customer consumption within their industry. For instance, let’s assume a company wanted to determine their own market share. They would first determine the size of the market, based on the number of units consumed by all the customers in the market, and then take their unit sales and divide it by that market size. We’ll assume the following variables with the company’s market share calculated below.
- Market Size = 1000
- Company’s Unit sales = 150
- Company’s Market Share = 150 / 1000 = 15%
How Would Companies Forecast Market Share Based on Industry Growth?
When companies want to forecast market share in a growing market, they must first realize that to be successful requires they retain the same level of existing business. In this case, it’s a question of protecting that market share and growing it at the same time. In our example above, for the company to increase its market share first requires it to retain its current share of 15%.
To forecast an increase in a growing market requires the company be aware of how much that market is likely to grow. This is why those aforementioned tools are so important. By anticipating the industry’s growth, companies can plan staffing requirements, machinery and capital expenditures and put plans in motion to grow their share of the market.
Let’s assume that the company’s industry is expected to grow by 3% in the upcoming year. The new market size will be 1000 * 3% or 1030 units.
Company Grows Revenue: If the company combined strategies to improve customer retention and loyalty, and enacted an aggressive sales and marketing plan to steal business, it could be successful in growing its market share to keep pace with the industry’s growth. In this case, if it was successful and managed to increase its unit sales to 170, then its new market share would be 170 / 1030 or 16.5%.
Properly forecasting market share requires companies understand their industry’s growth potential. This is why the best companies never settle for stagnant business levels from one year to the next. To remain idle means to lose a piece of the market. It’s the reason why companies go from being market leaders to market followers. It’s how companies lose market share when they don’t lose sales volumes or business. The best companies continue to track the growth of their industry and put plans in motion to become a part of that growth.
Learn about how a value chain analysis can help define your company's value within your market.
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