In a recent Leader’s Edge Peer Group discussion, we explored a timeless business question: Does market share drive margin? — and if so, how much market share do you need in order to see margin gains?

One client (my friend, Sam) brought his two branches to the table in this discussion:

• Branch 1 (Home Market): They enjoyed the highest market share in their region, and also strong margins.
• Branch 2 (New Market): They have a very low market share, and poor margins.

This raises the question:

“What’s the minimal amount of market share required to begin maximizing margins?”

Some sources suggest you need 40% market share to truly control pricing and margin.

Jack Welch, the old CEO of General Electric, famously pushed his business units to be #1 or #2 in market share for this reason—margin follows dominance.

But it’s not always that simple.

In the case of my client, Sam, they dominate their home market with far less than40% share. How is that? Because they dominate their niche.

Market Share Is About Definition

You must define your niche to define your market share.

Years ago in my pool company, our overall market share was quite small (5%); we proved this out by measuring pool permits.

But we weren’t competing for every job.

We owned our space—high-end pools where landscaping made up 50%+ of the project.  In that niche, we were #1—and our margins reflected it.

Market Positioning matters more than market share!

Lessons from the Field

From speaking with Todd Hardy, Director of Sales at Schill Grounds Management.

• Market share is not critical, except when undertaking a specific growth plan.
• Actual market share is hard to measure, it’s part art and part science—constant intel gathering is key.
• “Keep your clients close and your competitors closer” guides their Business Development strategy and their understanding of market share.

(Join us at the Summer Growth Summit to learn more about their finely tuned growth processes.)

For Residential Markets:

• You also have to network deeply to understand the players in your niche.
• Don’t just keep your head down: Keep tabs on your competitors’ quality, sales process, and differentiation.
• It takes active networking to understand and defend your niche.

Margins Follow Critical Mass

Margins are often more about scale than market share. You need enough volume to cover your target overhead:

• In commercial: What roles (BD, Account Managers, Controller, etc) are essential to scale a region or branch?

• In residential: Do you have the infrastructure needed to support your branch or homebase  (sales, operations, admin, finance)?

My client’s struggling branch isn’t underperforming because it’s market share is bad—it simply hasn’t hit critical mass.  And may lack the positioning to get there.

Your Challenge: Position Your Firm to Earn Higher Margins

You don’t achieve great margins just by aiming for them (though it helps!!).

You get them by doing these things well:

• Building a high-performing team that works efficiently and effectively.
• Reaching critical mass in sales.
• Owning your positioning and defending your niche.

Dominate to win: You don’t need 40% of the entire market to win—you just need to dominate your niche and scale smartly.

Jack Welch was right about being #1 or #2, but that only matters within the right market niche.

To ensure you are on the right path, ask yourself these 3 questions (bring these to your leadership team):

1. What niche are you trying to own?
2. What’s your probable market share within that niche?
3. And what volume will it take to hit critical mass?

Go get em!

Regards, Jeffrey Scott