Assess your options for business growth

Market penetration is one of the four main business growth strategies. It involves selling more of your existing products or services into your current markets to increase your market share or revenue. 

According to the Ansoff matrix, this approach carries the lowest risk, especially in the early stages of starting a business.

When to use market penetration

For an effective market penetration strategy, you need a strong product and good knowledge of your market and competitors. Common tactics include:

• increasing market share for current products
• increasing usage among existing customers
• targeting fast-growing markets
• driving out competitors in saturated markets

Different strategies can help you to grow your market share, including:

• price adjustments
• sale promotions
• targeted advertising, including through digital channels
• adding new distribution channels, such as online sales

You can segment your customers to reach new demographics for your product, such as different age groups. In saturated markets, you may need to find another approach to drive out competitors. For example, raise or lower your prices and promote heavily to challenge smaller competitors.

If you can compete on price and offering, look at ways of increasing usage by existing customers. For example, encourage repeat use with loyalty schemes, or add value to the existing product or service.

How to measure market penetration

Market penetration is often expressed as a rate or a ratio that measures your product's performance against the total market. It also relates to the number of potential customers that buy your product instead of a competitor's product.

As a metric, market penetration is expressed as a percentage. You can calculate it by taking the current sale volume of your product and dividing it by the total sale volume of all similar products on the market. The result is then multiplied by 100 to move the decimal and create a percentage. As a formula, this looks like:

Regularly monitor your market penetration to identify any upward or downward trends. The higher the market penetration rate, the more likely it is that your business will be considered a market leader in the industry. 

If market penetration doesn't fit your product, service or business, try other business growth strategies such as market development or diversification.