What is Share of Wallet? - Definition, Concept & Example

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Marketing departments are charged with improving an organization's reputation and increasing sales, but how can we measure their success? In this lesson, we'll discuss one critical metric - share of wallet.

What is Share of Wallet?

The first metric that often comes to mind when discussing the effectiveness of a marketing department is either market share or customer satisfaction. Certainly, those two metrics are important and can't be ignored. But, at the end of the day, marketing is a business practice that has the goal of increasing sales. If market share is increased by dropping prices, or customer increased customer satisfaction does not lead to more sales, we have to ask if it is really effective.

There is one metric, however, that provides an excellent look at customer loyalty, potential market size, and growth in the realistic target market. This metric is the share of wallet. Share of wallet is the percentage of customers' spending within a category on a specific product or company.

Examples of Share of Wallet

Let's start with a straightforward and simple example of share of wallet. Most people need to buy gas for their car every month, and there are a lot of gas stations they can pick from when they fill up. You own a gas station and want to know what your share of wallet is for your average customer.

Through market research you have estimated that your average customer spends $150 a month on gas. Using data from a frequent shopper program, you also know that the average customer spends $60 a month on fuel at your gas station. That information is all you need to calculate share of wallet. Doing the math, your gas station has $60 out of the $150, or 40%, of the money your customers spend on gas.

As the owner of a gas station, is 40% a good share of wallet, or is it low? Without knowing more about the industry and your competition, that is a hard question to answer. To really understand what a good goal is, you need to know more about your customers, which is why so many businesses now use shopper loyalty cards. These programs allow them to collect information on their customers that help them accurately calculate share of wallet, and more importantly, develop strategies to set and reach their goals for share of wallet.

Why Share of Wallet is Important to Understand

How is knowing that you have 40% share of wallet helpful to you as the owner of a gas station? First, it's helpful to know how much of a realistic market you are capturing. If you know that drivers in your town spend a total of $8,000,000 a month on gas, is that a realistic market for you to analyze? Probably not. There are drivers that live on the other side of town, drivers that prefer a different brand of gas, and any number of other factors that make that $8,000,000 market much more than one station could ever dream of capturing.

While capturing an entire market isn't very likely, especially for a gas station, capturing all of an individual's spending is much more realistic. By shopping at your gas station, a customer has shown that there is something that they like - whether it's the brand, price, location, or service. So, if you can increase your share of wallet, that means customers are spending more of their gas money at your station.

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