A simple way to describe Revenue is what a business is getting after providing products and services to the market. Market share mainly depends on how the business strategy formulates on the basis of a robust revenue model. More revenue determines product acceptance in the market. A strong revenue model ensures business viability leading to a good market share. This is what every entity is emphasizing. For any business owner, there is no scope for revenue or market share, rather it should be revenue and market share.
Why is revenue important for a business?
When we discuss revenue most businesses are focusing on the net revenue rather than total revenue.
This is not the right way to analyze revenue. At some point in time when you want to see the health of the business, this will give the correct picture.
Just think your net revenue is growing due to some cost adjustment. But when you consider your business health it will affect you in the long run. So higher revenue with a higher growth pattern doesn’t look good for your business. Businesses need to consider gross and net revenue.
The highest sales volume can lead to higher revenue. Higher market revenue would consider the following two things.
- Market Growth.
- It is an important reason for the growth of the business.
- Strong Product Range.
- Service at the highest level.
- Availability is one of the key major factors.
For Service related company customer satisfaction and profitability comes by providing their service at the highest level. A Public Limited company publishes its report by creating two categories. One is Revenue and the other one is earnings per share.
Healthy earnings per share would determine the profitability of any company. Higher numbers mean profitability.
What are the types of Revenue?
Operating Revenue –
This is purely based on the product or service that is offered in the market.
Non-Operating Revenue –
Other than products and services any revenue that comes from assets or any kind of investment or money gain comes under this head. Now you can understand why it is so much important for any business. Without revenue, no company would survive. It is directly influenced by any Business across the globe.
Example 1:
Company X is a giant in the Product A category and dominating the market for around 3-4 years. It has almost a monopoly in its category. It has the largest R&D division and it has a huge cash flow option.
Creating its brand such a high that nobody dares to touch that glory. By that time slowly but surely few competitors are penetrating that same market by creating an easy and effective distribution channel strategy.
Effective distribution strategy the competitors are reaching the end-users. Apart from the distribution channel, these brands are focusing on the pricing part and target the segment where volume is the key factor.
Now they have started playing the volume game and establishing its presence in such a way that Company X is almost facing a huge challenge. Within a few months of the company, X is slowly losing that market. After a year’s time almost completely wiped off from that particular market.
Market share has dropped from a huge number to a competitive number and suddenly a drop in revenue happens.
Why do market shares change over time?
This has happened due to R&D issues and lack of adaptation or changing of business strategy according to the market. So here we can see that market share is clearly impacting the revenue. Market share has dropped due to the ignorance of four parameters.
If Company X is looking at customer Behaviour and takes the necessary correction to attack its competition at the correct time, then Company X did not fall down where it was.
The timely reaction is also a main factor in the competitive market.
Example 2:
This is an example of a small business where the business is having fierce competition in the market and holding its revenue is very difficult.
The business has now started focusing on a comparatively weaker market and started creating an effective distribution channel.
A strong distribution channel means its product and services are reaching very fast and creating revenue on the upward node.
Competition brands are also focusing on that market and creating competitive products to counter the losing market share. But the so-called small business holds its market by updating its services and product. Automatically they are now holding a strong market share and generating incremental growth.
So in the above two examples, you can see a regular focus on the market share movement can easily draw attention for any business owner to take corrective actions. It has generated incremental revenue and product updating according to customer needs it has increased its sales share.
Now we can understand why Market Share is Important.
It is directly linked with revenue. If market share is showing improvement and it is growing then definitely revenue would grow up.
Why do market shares change over time?
This has happened due to R&D issues and lack of adaptation or changing of business strategy according to the market. So here we can see that market share is clearly impacting the revenue. Market share has dropped due to the ignorance of four parameters.
If Company X is looking at customer Behaviour and takes the necessary correction to attack its competition at the correct time, then Company X did not fall down where it was.
The timely reaction is also a main factor in the competitive market.
Market Share -
The main component measures business growth and how much it will contribute to generating revenue from a specific product or a specific market. Market share and profitability are directly linked with each other.
A good market share will determine the growth of the business and it shows Product Quality Leadership. Business needs to consider their market share by comprising with Industry Market Share.
First Business needs to capture the market size of its product or service and observe the movement of the industry. It is very simple to calculate the market share of its product by using the below-market share formula.
Product Value (month/Week/Day) / Total Industry Value (month/Week/Day)
By using the same calculation businesses can understand their share in the market in terms of Value or Volume.
Further utilizing this method businesses can understand their share in all the markets for all their product categories. After successfully doing the calculation, Businesses can understand market size importance and plan their road map for the future.
How to Increase Market Share?
Four parameters can determine any business to become a market leader. Market Share Metrics help a business gain a lead in the market.
- Creating good value-for-money products can give you passage.
- Before Launching the product, Industry size is what needs to take into consideration.
- Distribution Channel will create a road map to reach its end users.
- And Last but not least know the competition that gives you an edge toward your incremental growth on the market share.
Don’t you think this is the most important factor to generate your revenue?
The importance of market leadership falls under these four parameters. Regular up-gradation of your product and pricing proposition will definitely help a business to gain market share in a consistent way.
If market share increases month on month then automatically your revenue would go up and stabilize your business health.
Is it confusing? No, I guess both aspects are correlated and interdependent for any successful business.
Now, will discuss a few cases to understand how both are so relevant.
Don’t you think this is the most important factor to generate your revenue?
The importance of market leadership falls under these four parameters. Regular up-gradation of your product and pricing proposition will definitely help a business to gain market share in a consistent way.
If market share increases month on month then automatically your revenue would go up and stabilize your business health.
Is it confusing? No, I guess both aspects are correlated and interdependent for any successful business.
Now, will discuss a few cases to understand how both are so relevant.
FAQ:
- How to increase market share? Focus on the four parameters. product, industry size, and distribution channel, and know your competition.
- Is revenue the ultimate objective for any business? Yes, without revenue businesses can’t survive.
- Is it necessary to setup up proper distribution Channel? It is one of the main factors to set up any business.
- Continuous analysis is necessary? Of course, it is the one and only tool that helps any business to sustain itself.
- What is the process to know the market share? Market research by in-house sales and marketing team or else if cash flow is good enough then a full-time research agency does the rest.
