Earlier this year I put a post on this blog about the importance of forecasting market share in a growing market. Today, I thought I would go back a step and expand on small business marketing by outlining some simple steps to determine current market share. It’s a fairly straightforward process and doesn’t involve any convoluted calculations. In fact, determining market share can be summarized in three simple steps. First, the company would need to determine its current market size. Second, it would have to account for the number of customers it is currently servicing and third, it would have to determine how many customers remain and what potential they represent to the small business. It really is that simple. So, how can determining market share be condensed into these three easy steps?
1. Determining Market Size
A company’s market size is relative to the size or scope of its business. By this I mean that it’s different from one company to the next and one industry to the next. Some companies determine their market’s size on a global scale and yet others base it on a smaller geographical location, such as a town or borough. Determining your market size starts first with understanding how your company operates and the scope, or “reach”, of your business.
As a small business owner you’re probably not immediately concerned with conquering the global market just yet. Therefore, you’re more likely to focus on your immediate surroundings. Determining your market size involves accounting for how many customers your company can sell to. Let’s assume you’ve divided your market into three large territories with an average of 200 customers in each territory. Your total market size is therefore 600 customers.
2. Account for Current Customers
Determining the size of your market was one thing, but determining how many customers you’re currently selling to is another. Now, this isn’t to say that the second step is hard. It isn’t. You should have no problem determining how many customers you are currently selling to. The more difficult part comes in retaining these customers through aggressive customer reward programs as outlined in the video below.
Your customer retention is an essential part of not only maintaining your current market share, but in growing that market share in the future. Let’s assume that of the 600 customers in your market, your company is currently selling to 175 of them. Calculating your market share simply involves dividing 175 by 600, which gives a market share of 29%.
- Market Size = 600
- Current Customers = 175
- Company’s Market Share = 175 / 600 = 29%
3. Define the Value of Remaining Business
Granted, this is a straightforward example and determining market share is rarely this simple. However, the entire purpose of the exercise is to show how determining your current market share helps to set the stage for defining the value of remaining business. A simple approach would involve applying a dollar value to the business that remains. For instance, let’s assume that the average gross profit generated from each customer account is about $500.00. That means the remaining 425 customers represent a total gross profit of $212,500.00 to the small business.
Now, the small business can’t expect to have all 600 customers or 100% of its market. This simply isn’t feasible. However, if it determined that its new product offering will help it secure 100 additional customers in the coming year, in addition to its current 175, then it would be able to define the impact of this additional business and account for its future market share. 100 additional customers means $50,000.00 of additional revenue and a new market share of 45%! (275 / 600 customers)
Again, this is a simple example of the three steps to determine current market share. While small business marketing is a more involved process, it’s fair to assume that we sometimes make things more complicated than they should be. When you take a step back, it really isn’t that difficult a process. The difficult part comes from gathering the information and deciding what to measure. In some cases, it means measuring market share on specific product and service offerings. In other instances, it means measuring market share across and entire product portfolio.
Ultimately, it comes down to these three aforementioned steps. First, determine your current market size. Second, determine how many customers your small business is currently selling to and third, define the value of remaining business. Once you’ve mastered these three simple steps, you should be able to isolate which portion of the market share you have versus what remains to be pursued.
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