Investopedia defines market share as “the percentage of an industry or market’s total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company’s sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company to its market and its competitors” (http://www.investopedia.com/terms/m/marketshare.asp, para. 1, 2015).
There are several things to consider when determining market share. The key aspect is determining a reliable measure of the market. Often this is the annual sales of competing businesses who provide similar products and services.
You have ready access to your own annual sales, but what is the best way to access data on your competitors? Innovation, Science and Economic Development Canada has developed six profiles of key areas in business on their Industry Profiles website. The industries included are:
- Apparel
- Furniture
- Recreational Boats
- Printing and Related Support Activities
- Sporting & Athletic Goods
The data for each industry covers a recent five-year period (2007 to 2011) and includes:
- Statistical Summary
- Economic Overview
- Major Trends and Issues Facing the Industry and Associations
This report can be useful to support your own market share analysis. Take the time to investigate one of the other industry profiles.
Innovation, Science and Economic Development Canada also has detailed Financial Performance Data for several industries including Contractors, Food Services and Professional Services. You can also drill down to provincial data for each specific industry. For example, if you click on “Create a Report” and browse for an industry, you can choose an industry category and see all the related industries. Under “Retail Trade” you can find the BC data on Used Car Dealers and create a report based on unincorporated companies, which provides a breakdown of revenue and detailed expenses collected from annual tax returns. The revenues are broken down into 4 quarters or quartiles, grouping similar-sized businesses together. This breakdown will enable the reader to extract data for each range of annual revenues and the associated expenses. When you switch over to the incorporated companies, the balance sheet data is also available. Further, the report includes “Quality Indicators” that evaluate the data as Excellent, Very Good, Good, Acceptable, and Use with caution.
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Activity: Examining Business Market Share
Take the time to look up the incorporated data for Used Car Dealers. What do you notice? You might be surprised at the low net profits reported on the Income Tax returns.
This data is limited as it is available only at the provincial level, not at the community level. Overall, this tool can provide a measuring stick against all companies in your industry. The data is divided into four quartiles based on the annual sales. In the case of the incorporated used car dealers, the bottom quartile has annual sales between $30,000 and $200,000 while the top quartile has annual sales between 1,369,000 and 5,000,000 (Industry Canada, 2014). By knowing your sales data, you can look into the quartiles and see the average costs detailed down to wages, materials, amortization and so forth. Your tax return breaks down the costs in the same categories making it easy to compare your results to the average. Using the percentage of total revenue format makes a comparison to your business straightforward.
Take this opportunity to see what data is available for your business. You can anticipate that a knowledgeable buyer will want this information. Consider this part of your business documentation package.[/info]