When Sean Frank became the CEO of accessory company Ridge in 2018, he set an ambitious goal for their primary product line of wallets: $100 million in total revenue. By the time he spoke on the Shopify Masters podcast in 2024, Ridge’s wallet business was earning $100 million in revenue per year and had captured 1% of the global wallet market.
Sean saw an opportunity for Ridge to grow beyond its primary product category (wallets) by investing in a new product line of men’s rings, which Sean realized was a fast-growing market online. “It’s way easier to capture a small part of a big growing market,” Sean says. “You want to choose a market that has natural growing demand.” By making a smart choice about investing in the growing men’s ring market online, Ridge turned that product line into an eight-figure business within one year.
How can a business know which product categories or markets deserve investment now versus later? One proven method is the BCG matrix—a strategic planning tool that helps you evaluate product or service potential and decide what to scale, sustain, or sunset next.
What is a BCG matrix?
A BCG matrix (also known as the Boston Consulting Group matrix, BCG growth share matrix, and product portfolio matrix) is a strategic planning tool that businesses can use to analyze the value and future potential of distinct business units—including different service offerings or product lines. Visually, the matrix is made up of four quadrants representing high market growth and high market share, low market growth and low market share, high market growth and low market share, and, lastly, low market growth and high market share.
Created by management consulting firm Boston Consulting Group in 1968, the BCG matrix grew in popularity throughout the 1970s and 1980s (especially for Fortune 500 companies with large portfolios) and is still included in business school teachings as a strategic planning tool.
Main components of a BCG matrix
A BCG matrix includes four quadrants on a graph with two axes: market growth rate and relative market share.
- Market growth rate. The Y-axis on a BCG matrix represents market growth rate, meaning a product line or service offering in a market with a high growth rate will appear higher on that vertical axis, whereas those in a market with a slow growth rate will appear lower.
- Relative market share. The X-axis running horizontally along the BCG matrix represents relative market share, meaning a company’s portion of a total market when compared to competitors and the overall market size.
Where services or products fall on the BCG matrix is based on their relative market share and the market growth rate. Those business units will appear within one of four quadrants on the graph:
- Question marks. The top left quadrant includes question marks, meaning business units with low market share in a market with a high growth rate. These types of business units are called question marks since they require further consideration about whether they deserve more investment to gain market share.
- Stars. Within the top right quadrant, stars are business units with a high market share in a high-growth market. Stars are market-leading products and services capturing a significant portion of a fast-growing market and likely deserving of more investment.
- Dogs. Dogs, sometimes referred to as pets, are business units that fit into the bottom left quadrant, meaning they’re experiencing both a low market share and a low market growth rate. Using this method, companies can identify products or services that have a small share of a slow-growing industry and consider divesting from them or liquidating them entirely.
- Cash cows. On the bottom right of the BCG matrix, business units with a high market share in a low-growth market are called cash cows. Cash cows’ products and services provide consistent revenue for companies even after market growth slows down. If managed successfully, a star eventually turns into a cash cow, remaining a market leader.
When should you use the BCG matrix?
Although the BCG matrix framework is particularly useful for a larger company with a vast product portfolio composition across different markets, any business with a selection of products or services can use this tool to make informed decisions about where to allocate resources. By placing business units in one of four quadrants on the BCG matrix, you can visualize how well different product or service offerings are performing based on two main factors: their relative market share and the growth rate of the market.
For example, an ecommerce business selling cosmetics online could use the BCG matrix to identify which quadrants different product categories (including haircare, skincare, or makeup products) fit into and evaluate next steps for those categories based on their placement. Those next steps could include investing further resources to capitalize on a growing makeup market or divesting from a different product category that shows low market share in a declining market.
How to build a BCG matrix
- Choose which business units to analyze
- Research the market growth rate for every relevant market
- Determine the relative market share of business units
- Place business units on your BCG matrix
- Develop strategies for each business unit
Use these basic steps as a guide to build your own BCG matrix and inform your business strategy:
1. Choose which business units to analyze
Choose distinct business units that fit into their own category for your business. For example, if you’re an ecommerce merchant manufacturing and selling tech accessories, you could break down each product category as a business unit—like smartphone cases, wired headphones, gaming headsets, and smartwatches. Building a BCG matrix is often a collaborative effort, so reach out to the relevant team members responsible for each business unit in your company to help collect data and define the categories.
2. Research the market growth rate for every relevant market
Research and calculate the market growth rate for each market related to your business units. Calculating market growth can give you valuable information about the larger business environment and where there are future growth opportunities for your company.
To calculate the market growth rate, subtract the market’s initial value from the present market value and divide the difference by the initial value. Multiply that number by 100 to find your market growth rate as a percentage.
Here’s the formula for market growth rate:
[(Present market value – Initial market value) / Initial market value] x 100 = Growth rate
3. Determine the relative market share for business units
Calculate market share for each of your distinct business units to identify your market position in comparison with your competitors. This is how much of the total market your company has captured based on sales or revenue.
To calculate market share, define your company’s total sales for a specific business unit during a set period of time (like a month, quarter, or year). Divide that number by total industry revenue for that specific market in that time frame, and multiply it by 100 to find a percentage.
Here’s the market share formula:
(Your company’s revenue / Total industry revenue) x 100 = Market share
4. Place business units on your BCG matrix
Based on the market share and market growth rates that you’ve calculated for each business unit, plot them on your BCG matrix. Use a template to quickly build your BCG matrix with the axes and quadrants already set.
Put business units with high market growth rates higher on the Y-axis of the graph. For example, you could identify which of your tech accessories offerings are high-growth products (like a high market growth rate for smartwatches) and which are low-growth products (in markets with limited growth potential, like wired headsets).
Place business units with higher market shares further to the right on the X-axis. For example, your company might have a low market share in smartwatches (with the market primarily controlled by the largest competitor and a few other big tech companies), but a high market share in wired headsets. Using this example, smartwatches would fall under the question mark quadrant (with a high market growth rate and low market share), and wired headsets would fall under the cash cow quadrant (since it involves a high market share of a slow-growing market).
5. Develop strategies for each business unit
Based on which quadrant each business unit fits into your BCG matrix, you can make informed decisions about how to manage those units moving forward. Although companies need to consider other factors like long-term business goals and market dynamics like economic factors, there are some general best practices for each quadrant:
- Question marks. Business units that fit into the question marks column need further research and consideration to decide whether they require investment to gain a larger market share in a growing market or need a cutoff point where they’ll be pared back or even shut down completely if they don’t gain a larger market share in the future.
- Stars. Stars and question marks both benefit from markets with high growth rates, but stars have enough market share to generate large cash flows and justify significant investment moving forward.
- Dogs. Identifying dogs can help a company decide which business units need divestment or liquidation. Shifting away from dogs can allow businesses to reallocate resources and supply funds toward different business units that offer the most value.
- Cash cows. Since cash cows earn steady income through high market shares in markets with declining growth, they can benefit from continued investment, and businesses can use the earnings from these product categories to invest heavily in stars.
BCG matrix FAQ
What is a BCG matrix?
A BCG matrix is a strategic planning tool that businesses use to visually represent their business units (like distinct product categories and service offerings) on a graph based on market growth rate and relative market share.
What are the 4 categories of a BCG matrix?
The four quadrants of a BCG matrix are question marks (low market share, high market growth), stars (high market share, high market growth), dogs (low market share, low market growth), and cash cows (high market share, low market growth).
What are the two axes of a BCG matrix?
The two axes of a BCG matrix are relative market share (on the X-axis running horizontally) and market growth rate (represented on the vertical Y-axis).
How can you build a BCG matrix?
To build a BCG matrix, choose what business units to analyze (like different product categories offered by your company), research the market growth rate for the market of each unit, and identify their relative market share. Place each business unit on the BCG matrix based on those two factors and develop strategies based on their placement in one of the four quadrants on the BCG matrix graph.
