This article is an excerpt from the Shortform book guide to "The Marketing Plan" by William Luther. Shortform has the world's best summaries and analyses of books you should be reading.
Like this article? Sign up for a free trial here .
What does market share mean? How do you calculate market share?
According to William M. Luther, market share is the percentage of sales earned by a specific company. He explains how to calculate market share in his book The Marketing Plan.
Keep reading to learn the meaning of market share and Luther’s advice on acquiring market shares.
Market Share Meaning
What does market share mean? Luther defines it as the percentage of a target market’s total sales generated by a business. You should aim to acquire at least 30 to 50% of your target market to guarantee long-term profits. If you acquire less than 30% of the market, you’re unlikely to make enough revenue to get ahead of your competition and maintain your position. If you attempt to acquire more than 50% of the market, your costs to achieve this may outweigh the amount of profit you can make.
(Shortform note: It’s difficult to confirm whether acquiring 30 to 50% market share guarantees long-term profits. This is because, as Luther states, these profits depend on the size of the market. They also depend on the production cost of your product or service and the price you charge for it. For example, your product costs $10 to produce and your market size totals 1,000 customers. If you price your product at $15, a 30% share won’t generate high profits. On the other hand, if you price your product at $500, you’ll generate substantial profits. We’ll delve deeper into this topic at the end of this section.)
Luther explains that if you acquire at least a 30% market share, you’ll benefit from reduced costs that strengthen your position in the market. This is because business costs fluctuate in proportion to the volume of products and services produced. The more you produce to fulfill customer demand, the more resources you purchase in bulk, and the less you pay per unit.
This results in savings that you can allocate toward improving business operations—which means you can provide better-quality products and services and more effective customer service than the competition. These savings also mean that you can afford to charge lower prices for your products and services, because they reduce your reliance on profits to sustain your business.
Calculate Your Market Share Objective
(Shortform note: There are multiple ways to measure your market share. For instance, you could measure your share based on how many customers you serve. You can also measure it based on your revenue compared to the total sales in your market segment. The calculation we offer below is one of the most useful and straightforward ways to calculate market share.)
Calculate your current market share by dividing how many customers you serve in this market by the total number of customers in the market. Then multiply the result by 100.
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of William Luther's "The Marketing Plan" at Shortform .
Here's what you'll find in our full The Marketing Plan summary :
- How to build a team and motivate them to work together
- How to hire the right people—and keep them
- How to share and reinforce your vision
