How is market share calculated?

Market share is calculated by determining the portion of total sales that a particular company or product holds within a specific market. The correct method to calculate market share is by dividing the sales of the company or product by the total market potential or total sales from all competitors in that market.

When you use sales forecast divided by market potential, you are effectively capturing what percentage of the total market your sales represent. This ratio gives a clear picture of how much of the market is captured by your business compared to the overall size of the market. It’s a crucial metric for assessing competitive position and market strategy.

In contrast, the other options do not accurately represent how market share is defined or calculated in relation to the overall market context. Total sales divided by the number of customers would provide an average sale per customer rather than a market share percentage. Market potential divided by total volume does not align with the concept of comparing a company's sales to the total market sales. Lastly, multiplying sales forecast by market growth does not yield a market share; instead, it would likely indicate projected future sales without referencing the comparative metric necessary for calculating market share.