share of wallet (SOW) or wallet share
What is share of wallet (SOW) or wallet share?
Share of wallet (SOW) is a marketing metric used to calculate the percentage of a customer's spending for a type of product or service that goes to a particular company.
For example, if a customer spends $60 a month at fast food restaurants, and $30 of that amount is spent at McDonald's, McDonald's has a 50% SOW for that customer. The term is sometimes expressed as wallet share.
How is wallet share calculated?
Wallet share is calculated by determining the percentage of a customer's total spending within a category that is captured by a specific company.
The formula to calculate wallet share is as follows:
Wallet share = (customer's spending at your company divided by customer's total spending in the category) multiplied by 100
Here's a step-by-step breakdown of how to calculate wallet share:
- Identify the category. Determine the specific category of products or services to analyze. This could be anything from fast food to technology products.
- Total customer spending. Determine the total amount a customer spends in that category over a specific period. This could be monthly, quarterly or annually, depending on the company's requirements.
- Customer spending at a company. Determine how much of the total spending is directed to the company within the same period.
- Calculate the percentage. Use the formula provided to calculate the wallet share.
So, as an example, assume a customer spends $100 per month on coffee. If they spend $30 of that amount at Starbucks, the wallet share for this customer would be calculated as follows:
SOW = ($30 ÷ $100) × 100 = 30%
In this example, Starbucks captures 30% of the customer's total coffee spending.
Share of wallet vs. market share
Wallet share and market share are two distinct terms.
As described previously, wallet share refers to how much of a customer's expenses for a category of product or service go to a particular company. For example, a value-added reseller may have a 60% wallet share of a customer's spending on storage products.
Market share, meanwhile, refers to the percentage of what a company earns of the overall spending in an industry or product market. If the total revenue of all-flash array (AFA) systems sold worldwide is $800 million, and a particular vendor sells $200 million worth of AFA systems, then that vendor's market share for AFA systems would be 25%.
Strategies for increasing wallet share
Increasing wallet share is often easier than increasing market share. Strategies aimed at gaining wallet share include trying to increase the average amount that a customer spends per visit, encouraging more frequent visits, and fostering customer loyalty and customer retention.
Modern strategies to increase wallet share also involve using customer data analytics to better understand customer preferences and purchasing behaviors. By analyzing transaction data and customer feedback, companies can tailor their offerings and marketing efforts to better meet customer needs, thereby increasing their share of wallet.
In addition, personalized marketing and customer engagement initiatives can play a significant role in boosting wallet share. For instance, personalized recommendations, exclusive deals and loyalty programs can enhance customer experience and encourage repeat business.
Customer engagement is an effective strategy for creating customer loyalty. Read about ways to build customer loyalty for your business and how to use analytics to improve customer engagement.
