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What is share of wallet (SOW)?

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Last editedOct 20202 min read

Your customers have preferences, and ideally, you'll be at the top of their list. But it doesn't matter how much your customers like you if they like your competitors more. Bottom line: you're still losing sales. That's why it's so important to understand the meaning of share of wallet, and how to increase it. Learn more about share of wallet analysis with our guide, starting with our share of market definition.

Share of wallet represents the amount of money that a consumer spends on a particular brand, rather than competing brands within the same product category. As such, share of wallet analysis can help you identify your brand's most loyal customers and maximise the revenue they generate for your business. Increasing a customer's share of wallet can also help you improve customer retention and satisfaction, as well as brand loyalty.

Market share vs. share of wallet: what's the difference?

Essentially, market share refers to the percentage of the market (in terms of the product category or geographic region) that a company controls, measuring either the total number of customers or revenue. Calculating market share may require you to work out the total addressable market (TAM) for your product. By contrast, share of wallet tracks the amount that a specific customer spends on a brand relative to the amount they spend on competitors.

So, while market share and share of wallet are both about growing revenue, there's a clear difference in terms of their focus. In most cases, it's cheaper and easier to increase your brand's share of wallet than it is to increase your market share. But how do you do that? Simple. To improve your market share, you'll need to increase your overall number of customers. To improve your share of wallet, you'll need to get your existing customers to spend more money.

There are several ways to calculate your brand's share of wallet, but one of the most useful is a formula referred to as the "Wallet Allocation Rule." You'll need to know two specific pieces of information: the number of brands within your product category, and how your customers rank those brands according to preference (to do this, you should survey the customer you're trying to analyse). Then, you can complete your share of wallet calculation using the following formula:

Share of Wallet = (1 – (Rank / # of Brands + 1)) x (2 / # of Brands)

Let's look at a share of wallet example to see how this works in reality. Imagine that Company A manufactures golf balls. There are 10 other companies producing the same type of product, and according to a customer survey, Company A is ranked third. Using the formula above, we can complete a share of wallet calculation for Company A like so:

Share of Wallet = (1 – (3 / 10 + 1)) x (2 / 10) = 0.15 = 15%

As you can see from this share of wallet example, Company A has a share of wallet of 15% for this customer.

There are many ways to boost your wallet share, but on a basic level, it's about competing more effectively with other brands in the market. Using target marketing could help you understand your ideal customers in more depth, which may provide you with insights you can use to finetune your products or services, thereby improving your share of wallet.

You should also try to work out what your competitors offer that you don't. This could be a specific point – for example, Company A's (from the section above) competitors may provide a particular type of cover material that makes the golf ball lighter and more durable – or it could be something a little more generic, such as a better payment experience.

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