how to calculate market penetration
market penetration can be quantified as a rate that describes what proportion of the market has been saturated by the company to calculate market penetration you must know the number of customers a company has secured in addition to the total market size market penetration rate customers number ttms 100 where ttms total target market size begin aligned text market penetration rate frac text customers number text ttms times 100 textbf where text ttms text total target market size end aligned market penetration rate ttmscustomers number 100where ttms total target market size the number of customers will each be a unique customer that the company has secured business with some may choose to only use repeat customers to analyze the stronger consumer base others may choose any customer that has transacted in a given time period e g over the past five years the total market size may be difficult to define especially if the company has a broad geographical area or sells goods online the total market size is not necessarily the population of the area instead it is the total potential customers the company could have an alternative but similar way to calculate market penetration is to focus on dollars as opposed to people sometimes industries may be quoted as having a certain value or sales potential therefore companies can compare what they ve sold and compare it to this market potential market penetration rate total sales dollars ttmsp 100 where ttmsp total target market sales potential begin aligned text market penetration rate frac text total sales dollars text ttmsp times 100 textbf where text ttmsp text total target market sales potential end aligned market penetration rate ttmsptotal sales dollars 100where ttmsp total target market sales potential in this latter formula a company may care less about the number of customers it has secured this strategy may be important for companies that are striving to secure the largest customers or biggest market participants though they may receive a small market penetration rate when considering the number of people they serve companies that transact with the largest customers may be in better shape when using the second formula market penetration for companiesmarket penetration is not only used on a global and industry wide scale to measure the demand for products and services but is also used by companies to assess their product s market share as a metric market penetration relates to the number of potential customers that have purchased a specific company s product instead of a competitor s product or no product at all market penetration for companies is typically expressed as a percentage meaning the company s product represents a certain percentage of the total market for those products to calculate market penetration the current sales volume for the product or service is divided by the total sales volume of all similar products including those sold by competitors the result is multiplied by 100 to move the decimal and create a percentage market penetration is often cited as a percentage representing the total share of target customers attracted if a company has a high market penetration for its products they re considered a market leader in that industry market leaders have a marketing advantage because they can reach more potential customers due to their well established products and brands for example a market leader and manufacturer of cereal will have far more shelf space and better positioning than competitor brands because their products are so popular also market leaders can negotiate better terms with their suppliers because of their significant sales volume as a result market leaders can often produce a product cheaper than their competitors given the scale of their operation market penetration strategies