What is market share?
Market share is the percentage of the overall market for a product possessed by a company. For example, if 100 total mobile phones are purchased on the market, a company that sold 30 of them has a 30 percent market share.
How market share works
Finite period of time
In order to determine market share, companies need to identify a finite period of time to conduct the analysis. This might be the company's fiscal year, or a calendar year, or a quarter (a three-month period of time in the business cycle).
Do the math
Once a finite period of time is selected, a company divides its sales during that period with overall industry sales. A 30 percent market share means a company has sold 30 percent of overall sales in the industry during the fiscal period measured.
Companies measure growth by looking at successive fiscal periods to see if market share is increasing. While overall growth in sales remains an important metric, companies gain a better understanding of their competitors by measuring market share.
Why market share matters
When a company is increasing its market share it's beating its competitors, either by converting competitors' existing customers over to their products or attracting new customers.
Market share is an important metric for potential investors. Performance relative to competitors determines profitability. The larger a company's market share the more attractive it is to investors, and the easier it is for a company to raise capital.
Companies with larger shares of the market can throw their elbows around to their advantage. Their brands have more value and they can tout being market leaders in their marketing and sales campaigns. They also have leverage in negotiations with suppliers and in b2b relationships.