There are few better ways to measure your business against competitors than by calculating market share. Knowing how big your slice of the pie is helps keep founders and investors on the same page when it comes to tracking the market share of a product or service. So how do you do it the right way?
Simple, by taking into account:
5 ways to assess your market share
Analyse when is the right time to participate in the market
Depending on the size of the company, investors may dismiss market share as an indicator of progress.
Especially in the early days, this metric doesn’t matter if your company doesn’t already have a significant percentage to track.
Sizing your company against market leaders can be a fruitless exercise if you are still in the process of developing a product.
For founders and investors talking about a start-up in their first rounds of funding, now is probably not the time to worry about your market share.
Understand your Total Addressable Market (MTD)
You can’t measure your market share without first knowing the Total Target Market (TTM) you are pursuing.
It is essential to carry out a thorough assessment of both long-term and short-term market factors, as determining MTD can be a complicated exercise.
But make the best estimate of the number of customers in your market, the different types of customers you are targeting, how much they will pay, how you expect the market to grow, and project revenues for 100% market penetration.
Measure your sector
You now have a reasonable idea of how many customers are out there for the taking.
How many are currently under contract? Treat the total number of customers as units and simply calculate the percentage of your current customer base from the total number.
For example, if your company has an installed customer base of 200 in an MTD of 200,000, your market penetration is 1 percent.
Determine your market share
How much do customers actually pay per contract? I
n your MTD exercise, you have assessed your customer’s propensity to pay, now determine how that translates into contract value.
Again, it’s a simple equation: if you currently own 1,500,000 euros out of a total sales volume of 150,000,000, 150,000/150,000,000,000 = 1 percent market share.
Now, your market share and market percentages will not line up if the contract value is lower or higher than the projections. However, both data points will help to highlight the evolution of your market share and provide insight.
Tracking over time
Growth or decline in market share or market penetration can be powerful communication tools for your business narrative.
A declining share can expose increased competition, whether it reveals itself as a battle over price or new challenges to the game.
On the other hand, it is hard to argue with a founder who is showing steady growth when it comes to the company’s struggle for market dominance.
Keeping this in your regular communication with investors will be very useful once it has been determined that your company has reached a significant percentage threshold.
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