What is Market Share?
Market share refers to a company's portion of sales within the entire market in which it operates. This metric indicates a company's size within its market.
Market Share Formula
The formula for market share is:
Market Share = (Particular Company's Sales Revenue in Time Period X) / (Relevant Market's Total Sales Revenue in Time Period X)
Let's assume Company XYZ sells $50 million a year in widgets. If the total amount of widgets sold from all companies within the market totals $100 million, then Company XYZ has a market share equal to 50%.
Market Share = ($50 million) / ($100 million)
Why Market Share Matters
As the market for a good or service grows, many analysts view the maintenance or increase in market share as a sign of a company's competitiveness. Increases in market share might come from innovation, broadening demographic appeal, lower prices, or simply advertising.
Sometimes a company garners too much market share and becomes part of an oligopoly or even becomes a monopoly. If this is the case, it could violate anti-trust laws and be ordered to divest assets or take some other action to increase competition.