Key Learning Outcomes

  • Recognise that in order to increase revenue you can increase your share of the market, increase revenue from your existing share or generate income from new markets.
  • Determine your market share in order to establish a baseline when completing a strategic plan for your business.
  • Learn how to measure and analyse your market share.
  • Understand the benefits of a market share analysis, including the identification of areas of opportunity as shown in the case study business.

Article

Calculating market share is one tool that can assist you in gauging the performance of your business. This is easier for some industries than it is for others. For example, if you are a motor dealer, your market share information will be provided to you by the manufacturers, or in the real estate industry, statistics are readily available for all sales to allow you to calculate your share. For a large number of small businesses it can be more difficult to access relevant statistics, the key is to obtain as much knowledge as you can about your target market.

Once you have determined your pool of potential clients, you can then calculate your share through looking at your sales revenue, the number of transactions or even the number of clients. You may find that your industry has some data on typical buyer behaviour, or the local council or chamber of commerce may have some information that can help. The key to determining your market share for your business plan is to work from a baseline. If you want to increase your revenue there are three ways you can do this:

  1. Increase your share of the market.
  2. Increase your revenue from the existing market share.
  3. Increase your market.

If you find that you already have market saturation, you may need to look at option 2 or 3; alternatively, if you find that you have a smaller than expected market share, then you may need to focus on building the share before looking at expanding beyond your core market.[wlm_ismember]

Case study

If we look at our case study business, it is a small business operating from a defined geographic area. Therefore, it is best to look at market share in terms of the number of clients captured. Always start by looking at what knowledge you have about your client base and from what you have learnt through your market identification and competitive analysis. Market share for the case study was determined by using the census information to determine the potential pool of male and female clients in the prime and secondary markets. Then, through analysis of the client base, the total number of residents who had been to the salon was used to give a market penetration percentage. This is shown in the table below.

The Best Beauty Salon:

 

Prime market area

Secondary market area

Total residents

2,744

14,150

Female

1,438

7,258

Male

1,306

6,892

Number of female clients living in area

523 (36% of female residents)

157 (2.1% of female residents)

Number of male clients

42 (3.2% of male residents)

4 (less than 0.5% of male residents)

 

Drilling down further into these numbers, we know that 81% of the salon’s clientele fall into the 20–59 age group and that 93% of the clients are female. So looking at this market segment of females aged between 20 and 59 we find that the market share numbers change. Within the prime area, the potential number of female clients in this age group drops to 794 and The Best Beauty Salon has 423 clients in this demographic, resulting in a market share of 53.3% in this market segment. When doing the same calculation for the secondary market area using the figures gathered in the market identification, we find that of a potential pool of 3,839 female residents aged 20–59, The Best Beauty Salon has 127 clients which represents a 3.3% market share.

This additional information adds significantly to our research and gives a much clearer picture of where the opportunities for growth may lie. For The Best Beauty Salon there are some clear conclusions that can be made:

  1. In the prime target market of females aged 20–59 living in the core suburb, it is likely that the business is approaching market saturation. While 53.3% is not close to 100%, it is unlikely that every female resident in this age group is going to have a treatment at a beauty salon. The fact that more than half have tried Best Beauty Salon is likely to be trending above the industry average. The key with this client group is to increase loyalty and spend through an increased number of visits over a 12-month period.
  2. Based on the desire for the female population to care for themselves, there is potential to increase market share in their partners – the male population. At 3.2%, the market penetration is low so there is potential to structure packages for men or perhaps treatments for couples to increase revenue from this market segment.
  3. The low market penetration of female residents aged 20–59 in the secondary market area offers an opportunity to increase revenue through increased market share. Current direct mail into the prime market may be money better spent in the secondary market to increase awareness of the business. As identified in the competitive analysis, opening on Sunday may give busy professionals in the area a high-quality alternative to the low-cost nail spa or the arcade salon that only offers a limited range of services.

As you can see through strategic and thorough research, areas of opportunity start to present themselves. The final research sections are to make sure you have completed a gap and a SWOT analysis for the business.[/wlm_ismember]

[wlm_nonmember]Would you like to see the whole article?

OneDollarOffer

Would you like to start driving positive changes in your business? Would you like to see increased productivity and profitability? Of course you would!

As part of our commitment to being a low cost yet highly effective service to help owners and managers of small to medium sized business, we are now offering the first month of your membership for just $1! This means you will get full access to all of the learning articles, tools and tips that our website has to offer and with a commitment to upload at least another 150 learning articles through 2015 there is also plenty more learning on the way. On top of this you will also receive our weekly newsletter to keep you updated on new learning for the week and much, much more!

You can cancel at any time, however, if you see the value in what we’re offering (and we’re sure you will!) your membership will automatically continue after your trial at the low cost of just $19.95 per month. So what are you waiting for? For just $1 you are getting full access to all of our content for 30 days risk-free, so come on and join our community today![/wlm_nonmember]

 

Success is giving it your Absolute Best!