What is Share Of Wallet (SOW)
A share of wallet (SOW), also known as wallet share, is a marketing tool used to calculate how much of a customer's cost for a product or service goes to a specific company. Increasing wallet share is a more natural, less expensive, and more efficient way to boost revenue than expanding the market share would be.
BREAKING DOWN Share Of Wallet (SOW)
The share of wallet (SOW) is used by analyst use to reference market share and competition. A business with a high share of wallet has a higher percentage of the customer's wallet. But what exactly does this mean? First, it is relevant to understand the wallet referenced is the customer's wallet. It refers to the number or dollar amount of sales the company is taking from the customer's wallet.
More broadly SOW is used to describe a company's position in the marketplace, which is often confused with market share. Increasing wallet share can be a profitable strategy. For example, a bank might refer a wealth management client to a mortgage representative to fulfill other needs. By cross-selling, the within the bank structure, they can increase their share of the customer's wallet. Market leaders try to capture both market share and share of wallet. However, there is a difference between the two terms.
Calculation of Market Share
Market share is often confused and used interchangeably with the share of wallet. This confusion is because both describe a company's positioning within the marketplace. Market share is determined by dividing company sales by sales in the entire market or industry. For example, assume company Alpha sells $1 million in widgets to company Beta. The total of all sales in that market is $10 million. Company Alpha has 10% of the total market sales, or a 10% market share ($1 million/$10 million).
Calculation of Share of Wallet
Calculation of share of wallet is by how much the customer spends with a particular company. To find this, you will divide the customer's purchases with the company, by what the customer spent in total for all purchases within the same product or service class.
This approach defines market share from an internal perspective. Instead of looking at the share of total expenditures in the market, which is going to be small for new or small businesses, the share of wallet narrows the universe. SOW focus is on customer expenditures. In other words, one term looks at the share of the market, while the other looks at the share of customer. For example, if a customer spends $100 per month on fast food and $20 of that total is spent at Burger Palace, then Burger Palace has a 20% wallet share ($20/$100=20%).