What is market penetration?
Market penetration is a quantitative measure of the amount of product or service being used by customers, compared to the total estimated market for that product or service. It is a measure of a brand’s popularity in the market and expresses the total market available to a company.
How to calculate market penetration?
To calculate the market penetration of a product, divide the ‘sales volume of the product’ by the ‘total sales volume of all similar products’ (including those sold by competitors). Then multiply the number by 100 to get the percentage of market penetration.
Another way to calculate your market penetration might be by – dividing the number of customers by the target market size and multiplying by 100.
Formula for calculating market penetration
Real-life example of market penetration
Let’s understand market penetration by an example:
You run a team management SaaS business. The sales volume of your software in the first quarter stands at $10,000 and the total sales volume of all team management software in the market (including your and your competitors’) in the first quarter was $100,000.
Then, the market penetration of your SaaS product will be: 10,000 / 100,000 x 100 = 10%
This means, out of the total estimated market of team management software, your product enjoys 10% of that market.
What’s an average market penetration? (benchmark)
An above-average market penetration rate for consumer goods is estimated to be between 2% - 6%. A good penetration rate for business products is said to be between 10% - 40%. If your SaaS product grabs 10% of the TAM in any industry – you’re probably doing quite well!
If a company has a high market penetration for its products, they're considered a market leader in that industry.
By the fourth quarter of 2017, Apple Inc. (AAPL) had amassed a market share of more than 50% of the smartphone market throughout the world.
In 2018, Amazon’s share of the US ecommerce market was 49% - that is more than its top three competitors combined!
Ways to increase your market penetration
- Increase your promotional efforts: For new brands, the challenge is not to create a want but to create brand awareness. In order to increase your brand awareness, you might want to consider availing brand development services from an agency and be more aggressive with your marketing campaigns.
- Adjust your pricing: The pricing of market leaders is quite high. Emerging businesses play with low prices to gain market share and grow their revenue. By looking at your competitors, adapting your pricing to achieve greater market penetration can be a strategic move. Read: Why Price Is the Most Important P in the Marketing Mix
- Target-specific locations: Some products have great demand in selective locations as compared to others. Targeting the location with high demand would lead to a surge in use, sales, and market penetration in that region.