Three Ways to Measure Market Share

Today, we can easily recognize companies like Samsung and Apple, whose products are used by millions of people. But how can we tell how much influence a company has in its market? One way is to look at its market share. Market share tells us how much of a particular market belongs to one company. However, there is more than one way to measure it. The same company can have different market shares depending on what we measure. The first method is market share by revenue. Revenue is the money a company brings in by selling its products or services. Revenue-based market share measures how much of the market's total revenue comes from one company. Imagine a market with only two smartphone companies, Company A and Company B. Company A sells 100 smartphones for $500 each, while Company B sells 50 smartphones for $1,000 each. Both companies generate $50,000 in revenue. Therefore, each company has a revenue-based market share of 50%. The second method is market share by units sold. Instead of measuring revenue, this method counts how many products each company sells. In our example, Company A sells 100 smartphones, while Company B sells 50. Together, they sell 150 smartphones. This means Company A has approximately 66.7% of the market by units sold, while Company B has about 33.3%. Even though both companies earn the same revenue, Company A has a larger share because it sells more phones. The third method is market share by profit. Profit is the money a company has left after subtracting its expenses from its revenue. Profit-based market share measures how much of the industry's combined profit comes from one company. Suppose Company A earns $10,000 in profit while Company B earns $20,000. Their combined profit is $30,000. This gives Company A approximately 33.3% of the total profit and Company B about 66.7%. Although Company B sells fewer smartphones, it makes more money after expenses. However, profit-based market share is less commonly used than revenue-based or unit-based market share. Companies have different cost structures, and the results can be difficult to interpret when some companies are losing money. So which of these three methods is the most accurate? There is no single answer. Revenue tells us how much money a company brings in, units sold show how many products customers buy, and profit tells us how much money the company keeps after expenses. Ultimately, market share cannot always be understood through a single number. When researching a company before investing in its stock, it is important to look beyond how large its market share is. We also need to understand how that market share was measured.