What does 'Share Of Wallet - SOW' mean
Share of wallet (SOW) is a marketing term referring to the amount of the customer's total spending that a business captures in the products and services that it offers. Increasing the share of a customer's wallet a company receives is often a cheaper way of boosting revenue than increasing market share.
BREAKING DOWN 'Share Of Wallet - SOW'Increasing share of wallet can be a profitable strategy. For example, a bank might refer a wealth management client to a mortgage representative. By cross-selling within the bank they can increase their share of the customer's wallet.
Share of Customer Wallet vs. Market Share
Share of wallet (SOW) is a term analysts use to reference market share and competition. A company with a high share of wallet has a higher percentage of the customer's wallet, but what exactly does this mean? First, it is important to understand the wallet referenced is the customer's wallet. In particular, it refers to the amount of sales the company is taking from the customer's wallet. More broadly SOW it is used to describe a company's position in the marketplace, which is often confused with market share. The best companies go after both market share and share of wallet, but there is a distinction between the two terms.
Market share is often confused and used interchangeably with, share of wallet. This is because both describe positioning in the marketplace. Market share is calculated by dividing company sales by sales in the entire market. For example, if company A sells $1 million in widgets to company B in a market with total sales of $10 million, it has 10% of the market, which is calculated by dividing company A's sales by the sales of the entire market. This means that company A has 10% market share.
Share of Customer Wallet
Share of wallet is calculated by looking at how much the customer spends with a particular company. The calculation is: customer spend with company / customer spend within total category. This approach defines market share from an internal perspective. Instead of looking at share of total spend in the market, which is going to be small for new or small businesses, share of wallet narrows the universe to focus on customer spend. In other words, one term looks at share of market, while the other looks at share of customer sales. For example, using the same example, if company A sells $1 million in widgets to company B, and company B buys $5 million widgets, company A's share of wallet is $1 million divided by $5 million, or 20%.