How to Calculate New Product Theoretical Market Share

by C. Taylor

Numerous statistics alert you to changes in your business performance. Sales volume and profit are common -- but sometimes misleading -- calculations. Using just these bottom-line figures, you cannot ascertain if a decrease is a fault of the business, a weakening economy or reduced demand. However, market share gauges your sales volume against the entire market. If your market share remains steady, but sales volume is falling, then the effect is not limited to your company. For new products, you cannot calculate an accurate market share, but you can calculate a theoretical market share from anticipated sales.

Estimate the total sales volume you anticipate for your new product. This estimate may use the total number of units being sold or total sales revenue. As an example, if you already had an exclusive contract to sell 100,000 units of the product to a major retailer, then your anticipated sales volume is 100,000 units.

Research your competitors' sales volumes. This information is usually in the company's most recently published balance sheets, or you might find a press release indicating their anticipated sales volume. In the example, you might discover you only have two other competitors whose most recent sales volumes were 150,000 units and 200,000 units.

Calculate the total market volume. This can be tricky, because you have to determine from where your anticipated sales are coming. If the market is expanding and you're capitalizing on that expansion, then the total market volume is your anticipated sales volume plus that of your competitors. In the example, add 100,000 plus 150,000 plus 200,000 to derive the total market volume of 450,000 units in an expanding market. However, if you captured your contract from one of your competitors, then you're reducing his volume by that amount. Therefore, the total market volume would be 100,000 plus 200,000 plus 150,000 minus the 100,000 you captured from that competitor, or 350,000 units.

Divide your anticipated sales volume by the total market volume to calculate market share. In the latter example, 100,000 divided by 350,000 is a market share of 0.286, or 28.6 percent.

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