Tuesday, February 8, 2011

Sales vs. Share

Looking at both may tell a different story…an interesting one at that.

“We’re winning!” “Surprise, you’re actually losing.”:
Can you grow sales and lose market share? Can you lose sales and grow market share? You bet! Sales gives a simple idea of how business is doing, but share gives an idea of how well a business is doing compared to its competition. Looking at both can tell you a lot about the market, current opportunities or potential threats.

Exhibit A is an example of looking at total market sales, a specific business’s sales and that same business’s market share. As you follow the trends you should be able to notice that a sales increase doesn’t always translate into an increase in market share or that a decline in sales doesn’t always equal a decline in share. In fact, you should be able to see years where sales didn’t change, yet share either declined or increased. Some of it can make one’s head spin, but this should demonstrate the importance of looking at sales and share. They are definitely not one in the same.

Exhibit B demonstrates the same information, only year-over-year changes in market sales, business sales, and business market share.

Increasing volume, sales, revenue, audience, or other metrics is important, but shouldn’t always be the primary focus. As most of us have seen recently, asking a business to increase sales under recessionary conditions isn’t always realistic. Competitive market share is as much, if not the most important metric to track. In fact, a lot of businesses only track sales numbers and run the risk of losing to competitors over time.

As the market expands and contracts, beating one’s competitors should be the first priority. I’ve created a grid to better understand the differences that can occur between sales and share (see Exhibit C).

Understanding where one falls on the Market Volume-Business Share Grid can play a determinant factor in strategic planning. It surprises me that more organizations don’t trend both of these measures. See Exhibits D and E for trends combined with categorization of the Market Volume-Business Share Grid (Exhibit C).

The value of understanding trends in sales and share:

Whether it’s your own business or someone else’s, I’m hoping decision makers and analysts will start taking a look at both sales and share. I’ve seen business’s patting each other on the back for a job well done, when little did they know, their business was actually losing share to competitors. Looking at both can prevent this false sense of success. I’ve also seen businesses complain of declines, but they were actually increasing their market share. The market will have its ups and downs, but what’s most important is maintaining or growing your share within that market. The share will give context to the sales growth or declines. Strategic discussions can’t take place until you figure out where you fall in sales and share growth.