Last editedJan 20212 min read
Maybe you’re launching a new startup and hoping to make a big impression on your target market. Or perhaps you’ve already been in business for a while now, and you’re looking for a way to increase sales, drive revenue and take your business to the next level. It doesn’t matter if you want to make a big splash or pursue sustainable growth, your goal remains the same… market penetration. But what is market penetration? And what does it mean for your business?
Here, we’ll look at how to create a market penetration strategy that will help you to achieve your business goals – whether that’s global expansion or making the best possible first impression on the market. But first, let’s make sure we’re all on the same page.
What is market penetration?
Market penetration is the extent to which your business has infiltrated its target market. The term can be used to describe your strategy for driving sales without changing your products, and can also be used as a metric that helps you gauge your market share.
Market penetration can also mean how well you expand into a new market, or how you increase your saturation within the market that your business already occupies.
It’s important to know and understand your brand’s market penetration, as it is the bedrock upon which you’ll build future growth.
How do you measure market penetration?
In order to ascertain your market penetration, you first need to figure out the size of your market. This means knowing your customer profiles, and the geographical area your business covers to properly segment your market. In other words, find out how many people live in the area your business covers, and whittle away the demographic groups that will have no interest in your products or services. This is your “total addressable market” (TAM).
There’s a simple formula for calculating TAM:
Number of customers / total market size x 100= TAM.
Let’s say you have a total addressable market of 50 million people. Of those people, 2.5 million use your products. That would make your market penetration 5%.
What is a good rate of market penetration?
That really depends on the size, scope and nature of your business. The average rate of market penetration for consumer products can be anywhere between 2% and 6% of TAM. So if your market penetration is over 6%, you’re already doing better than most. If you operate in the B2B space, however, market penetration rates can be anywhere between 10% and 40%.
What’s the difference between market penetration and market share?
Although they are often used interchangeably, market penetration is not the same as market share, although it does drive market share. The difference is:
Market penetration is the percentage of your target market that you sell to during a given time period.
Market share is the portion of your market’s total value that your business commands.
How do you increase market penetration?
Now that you have a better understanding of market penetration, and how to calculate it, we can look at some practical ways to increase it. Of course, this will depend largely on your goals. Nonetheless, there are a number of proven strategies that can help to increase market penetration:
Lowering the price of a product or line for a limited time to make them more appealing for a broader audience
Increasing customer usage and reducing churn rates
Implementing loyalty / reward programmes
Incentivising customer referrals
Adding new features to existing products
Forming partnerships with other trusted companies and experimenting with co-branding
Simplifying the customer journey and eliminating barriers to sales
Investing in dynamic marketing strategies, including influencer marketing
We can help
If you’re interested in finding out more about market penetration, market share, your marketing spend, or anything to do with your business finances, then get in touch with the financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.