Market share projection tips for small business PDF

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Market Share Projection Tips for Small Businesses Every small business wants to increase sales and grow market share. To be successful requires the ability to assess the company’s current business, quantify the business that remains, and then adopt strategic planning initiatives that increase sales. Market share projection makes this possible. Often referred to as market share forecasting, the basic principle is to define what business remains within your market and how best to pursue that business. However, the question for small businesses often becomes: How does a company determine its current market share and project its future market share? We’ll keep the process simple. I’ll provide a comparison of how a company’s market share projection could be similar to that of a gap analysis on a sales territory. Afterwards, we’ll summarize the steps needed to determine the market’s size and the company’s current share of its market. Finally, we’ll review the types of questions small businesses must ask themselves when looking to capture market share.

Market Share Projection is Similar to a Gap Analysis The excel table below is taken from the article “Performing a Gap Analysis on a Sales Territory”. The table depicts a company’s current business (expressed in gross profit) at eight customer accounts, as well as the remaining business they could get at each of those accounts. The small business has essentially identified how many units each customer can purchase in a given year. They then use this information to quantify their current business and determine the amount of remaining business. The same basic approach applies when looking at market share projections. However, in this case, it’s about looking at the entire market, rather than a given territory. So, how is this done?

1. Determine Market Size Admittedly, determining the size of a given market isn’t always easy. Some markets are so large, and grow so fast, that there’s almost no way to accurately predict its size. In other instances, the market is so small, and concentrated in a local area, that it’s incredibly easy to determine its size. However, the fundamental principle to determining

market size is to calculate the potential consumption within the market. Continuing on our example above, a company might determine the size of their market by calculating how many units all their customers could purchase in a given year. 2. Determine Current Business Relative to Potential Business Every small business should be able to quantify its existing business. However, it’s a little more involved when it comes to determining the amount of remaining business. As mentioned, it’s a question of understanding how much customers could actually purchase within a given year. For example, let’s assume a small business sells parts to a market that has three large machine manufacturers. How many machines are sold in the market in a given year, and how many of the company’s parts does each machine need? 3. Determine Current Market Share Determining current market share simply involves dividing current business by total market size. Continuing from our example above, let’s assume that the small business currently sells 10,000 units to the three machine manufacturers. The small business determines that the remaining business includes an additional 30,000 units that could be sold to these three manufacturers. The total market size would therefore be 40,000 units and the company’s market share would be 25%.  Market Size = current business (10,000 units) + potential business (30,000.00)

= 40,000.00 units  Current Market share = current business/market size = 10,000/40,000 = 25%

Once the small business has determined all the variables, the entire process to determining market share is pretty simple. The problem is accumulating the data on the size of a given market. To help, there are several sources of information that can be used. Some of these include: trade magazines, industry or market publications, the internet itself and getting the information directly from customers.

How Can a Company Project its Future Market Share? In our example the small business has 25% market share. There are an additional 30,000 units available. However, to project its future market share, the small business must determine how much of the remaining business (30,000 units) it can steal from its competition. Because every market is different, every market share projection will involve different approaches and different circumstances. However, the basic approach is to determine how much new business (units) the company can steal from its competition. These are the types of questions the small business must ask itself.  Does the small business have a cost advantage it could use to steal more

business? If so, how much could it realistically steal?  Doe the small business currently have contractual agreements on supply with

customers and are those customers looking to increase their consumption?  Can the small business capitalize on any errors made by its competition?  Have customers indicated that they’ll be buying more in the coming year and

have these numbers been captured in sales forecasts?  Does the small business have a new product and have customers indicated

they’ll move forward with orders? If so, what are the volumes?  Has the small business improved its marketing approaches and seen better,

more qualified sales leads?  Does the small business have a technological advantage, or even a cost-per-

use benefit to its products, that they could leverage to secure more sales? Let’s assume that after answering all these questions, the small business determines that it could realistically steal 5,000 additional units from its competition in the coming year. Assuming they retain their 10,000 units from the previous year, the small business would increase its upcoming yearly sales totals to 15,000 units. Its market share projection will be these 15,000 units divided by 40,000 units (market size), or 37.5% of the market. Therefore, the small business has projected a market share increase of 12%. By now you’ve probably deduced that market share projections are just like sales projections – and they are. It’s just another reason why sales & marketing go together. However, marketing is far more than just sales. Marketing is everything the small business does to increase its sales. Those aforementioned questions aren’t just centered around using price to steal business. They are also predicated on using market information, and marketing itself, to steal business. In addition, small businesses must take into consideration the growth rate of their market when looking at market share projections. If the market itself is projected to grow by 3%, then that aforementioned 40,000 units (market size) would become 41,200 units....