What is Share of Wallet (SOW)?
Share of Wallet (SOW) is a sales metric used by companies that retail goods or services indicating how much (on average) a consumer spends on a company’s product or service as compared to how much they spend on competing products or services. In other words, it indicates what percentage of a consumer’s total expenditures on a specified product/service goes to buying Company X’s brand.
Share of wallet is a practical measure of how well a company’s product or service is competing in the marketplace. It is also an indicator of brand loyalty, the total size of the market, and potential sales growth.
Share of wallet can be looked at for a specific product or service, or, alternately, to measure a consumer’s total expenditures for all of a company’s products or services. It is a metric frequently considered in the financial services industry to help determine a customer’s or client’s projected lifetime value.
- Share of Wallet (SOW) is a sales metric indicating how much (on average) a consumer spends on a company’s product or service as compared to how much they spend on competing products or services.
- SOW can be looked at for a specific product or service or to measure a consumer’s total average expenditures for all of a company’s products or services.
- Companies can increase their wallet share by selling complementary products and by taking steps to increase consumers’ brand loyalty to the company.
Share of Wallet – Example
Assume that Company X sells hair care products and wants to determine how it is faring in the marketplace. In order to accomplish that goal and, secondarily, to get ideas on how it can increase its sales, the company decides to calculate its share of wallet.
Market research data reveals that the average consumer spends $100 a month on hair care products. The company’s own internal marketing data shows that its customers spend, on average, $35 a month on the company’s hair care products. Therefore, its share of wallet is 35%.
Whether 35% represents a good or bad share of wallet depends largely on how competitive the marketplace is for specific types of products – that is, how many competitors there are in the marketplace. If only two companies sell hair care products, then the company’s 35% share of wallet indicates that it is not performing very well, as its only competitor has nearly twice as much share of wallet – 65%. However, if there are 50 active competitors in the hair care marketplace, then a 35% share of wallet would be considered outstanding.
Why Wallet Share is Important
Share of wallet is a key sales metric because of the fundamental nature of selling products. According to marketing studies, it is five to seven times less expensive for a company to make additional sales to existing customers than it is to create new customers. Therefore, focusing on the spending habits of its existing customers can be of major benefit to a company in determining how to increase its total revenues.
Collecting share of wallet data may also reveal important information as to why consumers purchase – or don’t purchase – a company’s products. Such information can be extremely valuable in guiding a company’s marketing department in crafting sales and advertising campaigns that will be most likely to generate additional sales and revenue.
How to Increase Your Company’s Share of Wallet
The end goal of looking at your company’s share of wallet is figuring out how to increase it – how to get existing customers to buy more of your products or services, and how to attract new customers.
Following are some of the most commonly used methods of increasing your share of wallet:
1. Get to know your customers better
If you want consumers to spend more on your company’s products or services, you need to know what drives their spending in that product category. By doing customer surveys, you can find out what the specific factors are that motivate consumers to buy one product as opposed to another.
Is bottom-line price a major consideration, for example, or is customer service more important? Perhaps customers are looking primarily for a specific benefit – for example, buyers of electronic equipment may be especially drawn to products that are easy to install and set up.
2. Sell complementary products
One frequently used method for increasing wallet share is to offer additional products that are complementary to your primary product. Therefore, a company that sells shampoo may be able to increase its share of wallet by also selling hair conditioners and hair coloring products.
3. Increase brand loyalty to your company
Increasing customer loyalty to your company’s brand is one of the most effective ways of increasing your share of wallet. It can be accomplished by using marketing tactics designed to actively engage consumers and build and strengthen relationships with them.
Consider creating or expanding your company’s social media presence. Offer consumers free, helpful information by publishing articles related to your company’s products or services on your website.
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: