The following is a guest article by Eric Meerschaert, Executive Director of Strategy, Studio North.
One of our clients—a large industrial distributor who primarily sold through channels—was interested in shifting their channel messaging from product breadth to value of services. But as we worked with them, it became apparent that no one was looking at wallet share. Everything they did to empower the channel was inherently focused on new customers. Executives inside the company believed they had 60% of their customers’ wallets.
We did some analysis with their financial team to determine average opportunity and average wallet share by industry and customer size. And we unlocked a shocking truth: Their average wallet share was closer to 30%, and they had a nearly $100 million opportunity to capture low-cost, easier-to-find revenue. If they didn’t pursue that share, others would.
Do you own your most important customers’ wallets?
With the economy rebounding, and customers’ expectations rising, now is when smart companies make land grabs. If these smart companies are already inside your customers, they’ll make land grabs for your share.
Why? Existing customers remain the lowest cost of revenue.
- The Harvard Business Review has shown that an increase in customer retention rates increases profits by 25% to 95%.
- Another study showed that every dollar of new customer revenue costs $1.13 on average to attain. You don’t break even until year two.
- According to HubSpot, in the last five years, the cost of acquiring a new customer has increased by more than 50%.
Startups are caught in the necessary evil of having to base most of their revenue on new customers but, for most of us, it’s simply too expensive to pursue acquisition as our primary growth lever.
It may also be unwise. If you don’t own your most important customers’ wallets, someone does or will. If you’re not taking an intelligent, well-planned approach to maximize wallet share, you might lose your customers or miss out on the cheapest, fastest revenue in the market.
The basics of wallet share analysis
You likely have a substantial opportunity to grow wallet share, but how can marketing help your sales teams make it happen? Companies have been trying to do this for decades, with tactics reflecting rising levels of sophistication:
- Sales initiatives: Create sales targets and incentives to go out and sell things to existing customers. Reps get “spiffed.” Some companies even provide special pricing or “cross-sell bundles” to make the process flow more smoothly.
- Broad-based focus on product cross-selling: Identify products that have not been sold to customers and then shape ABM programs to target unsold customers with offers. A little sales enablement and ABM, and you’re ready to go.
- Analytically targeted customer penetration: Figure out systematically what groups of customers need, then pull together packages for 1:few ABM strategies that drive the most profitable and likely opportunities.
Wallet share analysis takes those tactics a step further, helping you eliminate the guesses, set realistic targets, and form attack plans that will deliver greater returns on your marketing and sales investments. Specifically, wallet share analysis:
- Considers each customer
- Avoids an inside-out product line focus
- Uses analytics to understand opportunity and customer readiness in smaller groups
- Leverages more systematic marketing to support sales by finding and closing the low-hanging fruit
You need three critical areas of analysis to complete wallet share analysis and get past educated guesses.
#1: Realistic opportunity analysis
Your wallet share opportunity is NOT the sum of everything you haven’t sold to everyone.
Perhaps that’s obvious, but I’ve seen many cross-sell campaigns that target every customer who could buy a particular product. That tactic will create leads, but it doesn’t represent your true opportunity.
Get clearer on your opportunity by completing a realistic opportunity analysis. Real opportunity happens when similar-sized customers begin to buy more like others in their group. For example, if you see companies $250M to $500M buying at or close to $300k over three years, that becomes a signal of expectation. Through multiple cuts of the data, you can find your realistic opportunities.
In this chart, two main groups stand out:
- Group A are overperformers. You need to understand what underlies these groups of companies and determine what wallet share moves would get those on the trend line closer to Group A’s performance. They represent the benchmark.
- Group B are underperformers. If even moderately satisfied, these customers can be your low-hanging fruit. Your first step is to move them toward the trend line. It may not be realistic to move them to best practice.
The more you learn from different slices of data, the more you can develop very precisely formed ABM and other attack plans to unlock realistic wallet share growth.
#2: Net Promoter Score (NPS) analysis
Happy customers buy more, Simple, right? Maybe, but if you’ve don’t systematically assess customer satisfaction, you may not know more than anecdotal stories of who is happy.
Several years ago, a CIO from a major client approached me. With little warning he said, “I just signed a renewal deal with you guys for $10 million. At the same time, I went to my board to gain approval to reserve $5 million extra each year to replace you guys. In three years, I will have saved enough to throw you out.”
Customers who buy a lot are not always happy, and customers don’t always tell you why they’re unhappy. Those are tough conversations. Net Promoter Score Analysis (NPS) done by an impartial third party will yield more complete and accurate results.
On the other hand, it is often true that those who are NOT buying a lot may be very happy and willing. I once interviewed the chief procurement officer of a very large alcohol distributor on behalf of a client. When he saw the breadth of the client’s offerings, the CPO said, “I had no idea you guys sold printers and labels. We just closed an $800,000 deal for printer supplies, and we would have given you a chance to bid.” He liked my client’s approach to serving customers and we always had fair pricing—but happy customers don’t always buy more without a little help.
A systematic NPS of your customer base will help you understand where each customer is at, why they’re happy or unhappy, and who is truly ready to buy more. These graphs from an NPS analysis show the top reasons for satisfaction (Group A: “promoters”) and dissatisfaction (Group B: “detractors”).
What would it be worth to your ABM programs to piece together groups with an understanding of who is happy and who is not? Detractors aren’t going to buy a lot until you make progress on gaps. Go make that happen first. Promoters are very likely to buy—but buy what? What you’re selling? Maybe.
#3: Embedded business priority analysis
Traditional NPS often lacks simple questions about important business and personal priorities. We suggest adding a few questions to determine your targeted customers’ critical near-term priorities. Happy customers combined with a specific list of what’s next helps you target sales outreach, focus ABM strategies and even target digital promotional programs. The more you know, the more successful you’ll be.
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If you’ve already done NPS, don’t you have enough? According to Harvard Business Review, “Companies spend a great deal of time and money trying to improve customer loyalty by measuring and managing metrics like satisfaction and Net Promoter Scores. But traditional gauges of loyalty correlate poorly with what matters most: share of wallet.” Wallet Share may be the most important signal of true loyalty.
Combine realistic opportunity analysis with a more complete version of NPS to look at the problem systematically, get past the stories and barriers and uncover the low-hanging fruit. You’ll shape better offers, and more effectively focus ABM, digital promotion and the buyer journey.
Perhaps most important, you’ll defend your customer base from competitors who may already own more than you know with your happiest customers.
If don’t own your customers’ wallet, someone will.
Want to learn more about our view of wallet share analysis? Let’s have a conversation, not a sales call.
About the Author: Eric Meerschaert is the Executive Director of Strategy at Studio North. Eric has a deep background in marketing leadership at Global 500 software companies, and was president of Click Commerce. His strategy roots grow from McKinsey & Co, where he learned that analytics, not instincts, drive the best corporate and market strategies.
Photo by Emil Kalibradov on Unsplash
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