What is Market Penetration?

Market penetration is the percentage of a target market that consumes a product or service. Market penetration can also be a measure of one company's sales as a percentage of all sales for a product.

How Market Penetration Works

Companies produce goods and services with a specific population or market in mind. In a broad sense, market penetration is a measure of individuals in a target market who consume something versus those who do not.

For example, if a company determines that product ABC has a market of 50 million people and of those 10 million purchase it, then product ABC's market penetration would be 20% (10,000,000 / 50,000,000 = 0.20).

Market penetration can be used to describe the percentage of one company's sales versus total sales for a specific product. For example, if all companies that produce product ABC have total sales of $5 million, and company XYZ's sales equal $1.5 million, then company XYZ's market penetration would be 30% ($1.5 million / $5 million = 0.30).

Why Market Penetration Matters

Market penetration for a good or service indicates potential for increased sales. In other words, the smaller a product's market penetration, the more a company should invest in its market penetration strategy for marketing that item. For this reason, high market penetration indicates that a product has become established and the company is a market leader.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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