One Surprising Way to Use Your Market Share Calculation

This previous post equips you with invaluable knowledge that most small monument companies do not have- your estimated market share. This information is like a sword that is going to cut through the fluff and get straight to the heart of countless business decisions.

But there is one way to use your estimated market share that you likely never thought of.

And let me tell you, this knowledge is going to rock your world.

The Piss-Poor Planning Problem

My husband’s grandfather was a cattleman. He ran a small farm in Southeast Arkansas where he made a name for himself in the cow trade. This man knew cattle inside and out. But he also knew how to run a business; that is what made him successful.

One of his favorite sayings was, “Proper planning prevents piss poor performance”.

It’s a variation of an old saying he learned in the Army and absolutely loved to use. And it rings true for nearly every situation in life and in business alike.

If you are not prioritizing annual business planning….now is the time to start.

Business Planning

Absolutely everything in business needs to be planned.

• Budgeting
• Sourcing
• Staffing
• Advertising
• Banking/Financing
• And More

A well documented annual plan acts as the road map to help your business stay on track to meet your goals. But, how does one plan for the year?

They use a variety of financial benchmarks, as well as their market share calculation.

Using Market Share for Forecasting & Problem Solving

In my last post I estimated my market share in Dallas County, TX, as 18%. Now I want to put that knowledge to work.

Forecasting is more than pulling a number from thin air.

Good forecasters look at historical company data, consumer trends, industry data and…their market share. And to do this, they must assign a dollar value to their market share.

Estimating the Market- In Dollars

So how do we assign a meaningful dollar amount to our market share?

Step 1: Know Your Market Size

We know, from this previous post, that our estimated market size is 13,981 people. So step 1 is done!

Step 2: Know Your Average Ticket

The next step is to estimate your average ticket sale. This can be done scientifically by taking your total annual revenue (ie revenues less sales tax and refunds), and dividing it by the number of tickets you sold in the year.

Doing this will provide you your average ticket.

For example purposes, let’s say my average ticket is $1,500.

Step 3: Calculate Market Value

Now I want to estimate my market’s value. This is the total, overall value of the monument market I serve. In my example, it is the value of the Dallas County, TX memorial market.

While memorial prices will vary between businesses, we are able to assume that our prices are going to be “in the ball park” of one another.

So, assuming my competitors share a similar average ticket, I can take my $1,500 and multiply it by my total market size.

$1,500 (average ticket) x 13,981 (estimated market size) = $20,971,500 Market Value in Dallas County, TX.

Step 4: Calculate Your Estimated Revenue Based on Market Share

Next I want to estimate my monetary share of the market. To do this I will take my market value and multiply it by my market share percentage.

$20,971,500 (market value) x 18% (market share) = $3,774,870 Estimated Market Share

Comparing the Financials

This is where analysis comes in. According to my calculation, my revenues, based on market share, should be somewhere around $3,774,870 per year.

Is my revenue going to be precisely that figure? No. In fact, it may be off a couple hundred thousand dollars without causing me too much concern.

However, if my revenues are significantly below my estimated market share, then I know it is time to go on a fact-finding mission.

What is Significant?

One of the most common questions is: what do you consider to be a significant difference?

And the answer is: we can calculate that! Yes…we can quantify a significant difference and make your life much easier.

Prior to entering the monument industry, I was a financial statement auditor. It was a career that I truly loved but never miss. Anyway, my first day on the job my manager asked me to calculate materiality for each class of transactions we were auditing.

Materiality is basically the difference between “correct” and “incorrect” that we are willing to deem as fair. Any difference falling within the threshold was considered “immaterial” and passed over. Likewise, any difference greater than that threshold was considered “material” and required more testing and review.

The concept of materiality is one that I use with my market share calculation to help me correctly place my worries or concerns. Generally speaking, a difference of 5%-10% is immaterial and doesn’t cause me concern.

However, if the difference is greater than 10%, I will want to investigate the calculation.

Investigating the Difference

To begin investigating any major differences I like to take a step down approach by doing the following:

• Double checking the accuracy of the population figures I used
• Double checking the number of units I sold annually. What constituted a unit? Did I consider date cuts? Why or why not?
• Did I accurately estimate my average sale? If I eliminated accessory and date cut revenues from my market share calculation, I need to also eliminate their revenues from my estimates
• Is there anything I need to add/take away from the calculation that I had not previously considered?

Now That I am Confident…

Now that I am confident my calculations are as accurate as possible, it is time to think through some major business decisions.

Are My Prices in Line?

If a large enough discrepancy exists between my actual revenues and my estimated market value, then I need to consider the following:

• Are my prices in line with the rest of my competitors? Am I too cheap? Are my competitors too cheap? How do I address either situation?
• Is my average ticket too low? How can I boost the average ticket?
• If my revenues are higher than my estimated market share, do I need to add manufacturing capacity, sales people or other staff?

If it appears that my prices are in line with my competitors, and if it appears my revenues are in line with my market share, then I know to think through the following:

• At 18% market share, do I feel as though I have room to gain market share?
• What is the risk of another market entrant emerging in the near future?
• Is there another market I can easily & profitably enter with minimal investment?
• Am I happy simply maintaining market share?
• Do I need to invest in additional manufacturing capacity to allow for future growth?
• Do I need to add additional sales people to accommodate growth?
• Is the cremation rate prohibitive of growth in this area?
• Etc, etc, etc.

Your Turn!

Now it is your turn to estimate your market share and see how you measure up. You might be surprised by your findings!

Update: Click here to learn how to track sales in Quickbooks Online to make your market share calculation a breeze!

Got questions about your calculations? Reach out! I am always glad to help!