These metrics help businesses assess performance and identify market opportunities, enabling more effective strategic and marketing decisions.
Market Size
Definition:
Market size refers to the total combined sales of all businesses within a particular market during a specific time period. It can be expressed in two primary forms:
Market size by value – the total revenue (£) generated from all sales in a market.
Market size by volume – the total number of units sold in a market.
Significance of Market Size
Understanding market size provides several benefits:
It indicates the overall scale and potential of a market, helping businesses assess how lucrative it might be.
It enables firms to benchmark their own performance against the total market to understand their relative position.
It helps businesses make informed decisions about entering new markets or investing further in existing ones.
It plays a role in resource allocation and identifying growth potential.
Market Size in Practice
Firms often use market research data, industry reports, and government statistics to estimate market size. Accurate estimations allow businesses to evaluate opportunities and risks more effectively.
Example (Market Size by Value):
In 2024, the total value of online fashion sales in the UK reached £35 billion. This is the market size by value.
Example (Market Size by Volume):
If 1.2 million electric vehicles were sold in Europe in 2024, the market size by volume for electric cars is 1.2 million units.
These figures guide businesses in planning production capacity, marketing campaigns, and investment levels.
Market Growth
Definition:
Market growth measures the rate of increase or decrease in market size over a certain period, typically year-on-year. It can reflect growth in sales value or sales volume.
Why Market Growth Matters
A high rate of market growth indicates a rising demand for products or services and suggests an attractive market for new or expanding businesses.
A stagnant or declining market might signal saturation, changing consumer behaviour, or the emergence of substitutes.
It helps businesses forecast future sales, plan expansion strategies, and assess investment risks.
How to Calculate Market Growth
To calculate the percentage change in market size over time, use the following formula:
Market growth (%) = ((New market size − Old market size) / Old market size) × 100
This formula provides a clear percentage increase or decrease.
Worked Example
Suppose the UK fitness app market was worth £400 million in 2023 and grew to £480 million in 2024.
Market growth (%) = ((480 − 400) / 400) × 100
Market growth (%) = (80 / 400) × 100
Market growth (%) = 20%
This 20% growth indicates increased consumer interest in fitness apps and could attract new companies or encourage existing ones to increase their investment.
Industry Examples
Smartphones: Driven by innovation such as foldable displays, the global smartphone market may grow 5–10% annually.
Plant-Based Foods: This market has seen double-digit growth in recent years as consumers turn to healthier and more sustainable diets.
Printed Books: The market has experienced low to moderate growth, with competition from digital alternatives impacting expansion rates.
Sales Growth
Definition:
Sales growth refers to the change in an individual business’s sales figures over a given period. It reflects the company's performance in either revenue (value) or quantity sold (volume).
Importance of Sales Growth
It is a key performance indicator for businesses, reflecting the impact of marketing, sales efforts, product development, and market conditions.
Sales growth shows whether a business is expanding or contracting over time.
It helps in identifying whether a company is increasing its market presence or lagging behind competitors.
How to Calculate Sales Growth
Sales growth uses a similar formula to market growth:
Sales growth (%) = ((Current sales − Previous sales) / Previous sales) × 100
Worked Example
A mobile phone retailer reported sales of £1.2 million in 2023 and £1.5 million in 2024.
Sales growth (%) = ((1.5 million − 1.2 million) / 1.2 million) × 100
Sales growth (%) = (0.3 million / 1.2 million) × 100
Sales growth (%) = 25%
A 25% increase suggests strong performance, likely influenced by successful promotions, increased demand, or the launch of new products.
Positive vs Negative Sales Growth
Positive growth indicates increased sales, possibly due to higher demand, better marketing, or improved customer loyalty.
Negative growth could reflect product obsolescence, poor marketing, increased competition, or declining consumer interest.
Benchmarking Sales Growth
Companies often compare their sales growth against competitors and overall market growth to assess relative performance.
Analysing Business Performance with Market and Sales Growth
When used together, these metrics allow businesses to understand both their absolute performance and relative market position.
Scenarios:
Sales Growth > Market Growth
The business is increasing its market share.
Example: Market growth = 5%, Firm’s sales growth = 12% → Gaining competitive strength.Sales Growth = Market Growth
The business is maintaining a stable market share.
Example: Market growth = 8%, Firm’s sales growth = 8% → Holding position.Sales Growth < Market Growth
The business is losing market share, even if sales are increasing.
Example: Market growth = 10%, Firm’s sales growth = 4% → Falling behind rivals.
Strategic Implications
When market growth is high, and a firm’s sales are growing faster, this could justify launching new products, expanding operations, or entering new segments.
If a business’s sales are growing slower than the market, it may need to revise its pricing strategy, promotional efforts, or product features.
In a shrinking market, even maintaining stable sales can be seen as a success and may highlight a loyal customer base or effective differentiation.
Using These Metrics for Strategic Decision-Making
Business Planning and Objectives
Marketing teams often set objectives like “increase sales by 15% next year” or “achieve 10% market share in two years.”
Market and sales growth figures provide the quantitative basis for setting SMART objectives (covered separately in 3.1.1).
Forecasting and Budgeting
Knowing how fast the market is expanding allows companies to forecast future sales.
Accurate forecasts help in budgeting for production, staffing, and marketing campaigns.
Investor Relations
Shareholders and investors closely monitor sales growth and market performance.
Businesses with strong sales growth in growing markets are more likely to attract funding and investor confidence.
Identifying Market Opportunities
High growth rates in certain markets (e.g. plant-based dairy alternatives) can signal early entry opportunities.
Conversely, declining markets may prompt firms to withdraw or invest in innovation.
Sector-Based Examples
Smartphone Industry
Market Size: In 2024, the global smartphone market was valued at approximately $540 billion.
Market Growth: Grew by 6% from the previous year, driven by emerging markets and 5G device adoption.
Company Example: Samsung experienced 9% sales growth, outperforming the market and increasing its market share.
Clothing Retail
Market Size: The UK fashion industry was worth over £60 billion in 2024.
Market Growth: Grew by 3%, recovering slowly post-COVID.
Company Example: Zara recorded 6% sales growth in the same year, suggesting a competitive advantage due to fast fashion and trend alignment.
FMCG (Fast-Moving Consumer Goods)
Market Size: FMCG sectors like packaged food and cleaning products often involve billions in value.
Market Growth: Often ranges from 2–7% depending on product category.
Company Example: Unilever’s ice cream division saw 10% growth, driven by strong summer campaigns and new product launches.
Summary of Key Formulas
Here are the two essential formulas you need to know and apply:
Market Growth (%) = ((New Market Size − Old Market Size) / Old Market Size) × 100
Use this to determine how attractive and fast-moving a market is.
Sales Growth (%) = ((Current Sales − Previous Sales) / Previous Sales) × 100
Use this to assess how a particular business is performing over time.
These formulas are foundational to business analysis and form the quantitative backbone of many marketing decisions. Students should become confident applying them to real-world scenarios and interpreting their results in context.
FAQ
Market size significantly affects pricing strategies, especially in competitive industries. In larger markets with high demand and more customers, firms often benefit from economies of scale, allowing them to lower prices while maintaining profit margins. Additionally, a large market can sustain multiple pricing segments, enabling firms to differentiate their offerings through premium or budget pricing. In contrast, smaller markets may limit pricing flexibility due to lower sales volumes and increased pressure to cover fixed costs through higher per-unit pricing.
While consumer demand is key, several external factors also drive market growth. Technological advancements can create entirely new markets or revitalise stagnant ones, as seen with electric vehicles. Government regulation, such as subsidies or environmental laws, can encourage expansion in certain sectors. Economic factors like GDP growth, interest rates, and inflation also influence market conditions. Social trends, such as changing lifestyles or ethical concerns, can rapidly shift growth trajectories, especially in sectors like health, wellness, or sustainability.
Sales growth figures offer more than just financial insights—they help diagnose internal performance. If sales growth is significantly below industry norms, it may indicate poor marketing effectiveness, supply chain inefficiencies, or weak customer service. A sudden drop in growth could reveal problems with product quality or pricing strategy. Tracking sales growth alongside customer feedback and operational KPIs helps pinpoint where issues arise, enabling businesses to adjust tactics, reallocate budgets, or invest in staff training and system improvements.
Looking at sales growth across multiple periods gives a clearer picture of business performance trends. A one-off increase may be due to seasonal demand or a successful short-term campaign, but sustained growth across several periods reflects consistent strategy execution and customer retention. Conversely, a growth spike followed by a decline might reveal dependency on one-time events. Tracking sales growth over time also helps forecast future revenues, assess long-term viability, and plan strategic initiatives with greater accuracy.
Yes, it’s entirely possible for a business to grow its sales even in a declining market. This typically indicates that the firm is capturing a larger share of a shrinking pie—perhaps by outperforming rivals, offering superior value, or innovating while others fall behind. For example, a well-managed book retailer could increase sales through online delivery and exclusive editions even as the broader physical book market contracts. This scenario highlights strong competitiveness and may justify continued investment despite overall market decline.
Practice Questions
Analyse the importance of market growth as a factor influencing a firm's decision to enter a new market. (6 marks)
Market growth is a key factor when evaluating market entry because it reflects rising demand and potential profitability. A fast-growing market signals opportunity for sales expansion and can justify initial investment costs. It may also allow new entrants to gain market share more easily before the market becomes saturated. For example, the plant-based food industry has seen double-digit growth, encouraging new firms to enter. However, firms must also assess other factors like competition and barriers to entry. Overall, market growth provides essential insight into potential future returns and the strategic viability of market entry.
Calculate a business’s sales growth and explain what it reveals about its performance. (6 marks)
A clothing retailer achieved sales of £1.2 million in 2023 and £1.5 million in 2024. Using the formula: ((1.5 million − 1.2 million) / 1.2 million) × 100 = 25%, the sales growth is 25%. This indicates strong performance, suggesting the firm’s strategies—such as effective promotions or trend-driven product lines—are successfully boosting revenue. A 25% increase exceeds typical market growth in the fashion industry, meaning the firm is likely gaining market share. This performance can strengthen investor confidence and provide funds for future expansion. However, the firm must sustain this growth to maintain long-term competitiveness.
