Market Calculations

A large part of marketing includes analysing market data. This is important for marketing managers as it helps them gain more insight into their industry and competition. Market share and growth are essential measures of how well a company or a market is doing. These figures are vital for businesses operating in the industry and for companies trying to enter the market. But what exactly are market calculations? Read along to find out.

How to calculate market share

To understand the origins of the market share formula, we will first examine what market share means.

Market share formula example

To calculate market share, we need to know the value of two variables: sales of the firm and total market sales. The firm's sales can include the total sales of one product, the sales of one brand, or sales of a service. We use the following formula to calculate market share:

$\mathrm{Market}\mathrm{Share}=\frac{\mathrm{Sales}\mathrm{of}\mathrm{firm}}{\mathrm{Total}\mathrm{market}\mathrm{sales}}\mathrm{x}100$

Market Calculations: Market size formula

To calculate the market size, we need to know the value of two variables: total sales and market share.

$\mathrm{Market}\mathrm{Size}=\frac{\mathrm{Sales}}{\mathrm{Market}\mathrm{Share}}\mathrm{x}100$

It measures the percentage of change in the market between two years. Market growth is not the same as sales growth. Sales growth is the change in the number of sales between two years.

Market Calculations: Market and sales growth formula

The following are the formulas for market growth and sales growth:

$$\begin{gathered} \mathrm{Market}\mathrm{Growth}(\%)=\frac{\mathrm{Change}\mathrm{in}\mathrm{market}\mathrm{size}}{\mathrm{Original}\mathrm{size}\mathrm{of}\mathrm{the}\mathrm{market}}\mathrm{x}100 \\ \mathrm{Sales}\mathrm{Growth}(\%)=\frac{\mathrm{Change}\mathrm{in}\mathrm{total}\mathrm{sales}}{\mathrm{Total}\mathrm{sales}\mathrm{in}\mathrm{first}\mathrm{year}}\mathrm{x}100 \end{gathered}$$

How to calculate market cap

To understand market capitalisation calculations, let's first take a look at what market capitalisation means.

Market capitalisation is important because it allows investors to see the value of one company compared to others.

Market capitalisation measures what a company is worth on the market. Market capitalisation calculations are made for companies that are trading publicly (public limited companies).

They help predict the company's future value, as it shows the amount of money people and organisations are willing to pay for shares in the company.

How to calculate market value

$\mathrm{Market}\mathrm{Cap}=\mathrm{Number}\mathrm{of}\mathrm{outstanding}\mathrm{shares}\mathrm{x}\mathrm{Current}\mathrm{share}\mathrm{price}$

Market Calculations: Interpreting market data

Other essential market calculations include:

• Correlation

• Confidence levels

• Extrapolation

Marketing managers use these calculations to understand and interpret data during the market research process.

Market Calculations: Correlation

If a company introduces a discount on a certain product and, as a result, sales increase, the correlation between the two factors is positive (higher discount rate, higher sales). On the other hand, if the company increases the price of a product and, as a result, sales drop, it is an example of a negative correlation. Zero correlation means that two factors do not have a relationship with one another. For example, the price of coffee and bicycle sales do not correlate. These relationships can be plotted on graphs (see below).

Fig. 2. Positive, Negative, and No Correlation

Market Calculations: Extrapolation

For example, if a business wants to know what will happen to the sales of a certain product in the future, they can look at market data on the past sales of the product. If managers can see that sales for the product have been decreasing at a rate of 1.5 per cent per year, they can estimate that it will continue to fall at a similar rate in the upcoming years. This is known as extrapolation.

Market Calculations: Confidence levels

When conducting marketing research, researchers take samples of a population. This is because, in most cases, it is impossible to collect data on the entire population of interest. As a result, research data will not be 100 per cent accurate for the entire target population. Market research findings must have a confidence level. This reflects how certain researchers are that the data will be relevant to the target population.

As a result, there are various market calculations marketing managers must consider when formulating a marketing strategy. Depending on the type of market research conducted, researchers will choose the appropriate calculations to find relevant insight into the market.