Market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service. Market penetration can also be used in developing strategies employed to increase the market share of a particular product or service.

Market penetration can be used to determine the size of the potential market. If the total market is large, new entrants to the industry might be encouraged that they can gain market share or a percentage of the total number of potential customers in the industry.

For example, if there are 300 million people in a country and 65 million of them own cell phones, the market penetration of cell phones would be approximately 22%. In theory, there are still 235 million more potential customers for cell phones, or 78% of the population remains untapped. The penetration numbers might indicate the potential for growth for cell phone makers.

Market penetration is not only used on a global and industry-wide scale to measure the scope and for products and services, but also is used by companies to assess their product’s market share.