Market Growth Rate - Definition & Meaning
What is Market Growth Rate?
Market Growth rate is defined as the rise in sales or market size within a given customer base over a specific period of time. When a business analyses its market it requires interpreting its market growth rate. The sales growth is compared with the market growth rate.
When the sales growth is greater or equal to the market growth rate then the business is said to be performing well. The company is said to be healthy and called to be in growth phase. On the other hand when business is not doing well the sales growth will be lesser than the market growth rate in such a case the manager needs to analyse to possible reasons.
The market growth rate when used with share of the market helps a company utilise the resources in the cash cow and stars.
Formula
Market Growth Rate= (Change in market size)/(Original market size)
=(Current market size-Original market size)/(Original market size)
Companies can use the above formula to evaluate their market growth rates.
Current market size is the total sales (including competitors) for a particular product in monetary terms in the current year.
Original market size is the total sales (including competitors) for a particular product in monetary terms in the base year.
Example
Suppose Current market size = 8 billion
Original market size = 6 billion
Market growth rate = (8-6)/6 = 33.33%
Significance
The market growth rate can be used along with the drivers like demographics, sales of the other products to get the better analysis of a product. The market growth rate depends largely on the product life cycle, when the product is in introduction or growth stage the market growth will be higher. On the contrary the growth rate will decline at the inflection point. The managers need to make wise decisions to maintain the higher sales of the product.
Hence, this concludes the definition of Market Growth Rate along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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