The greater market share a product has, the lower the selling cost/revenue dollar, shorter sales cycles and greater profitability. Significant market share generates referrals and awareness by prospects who like to purchase products used by others, especially if current users are viewed as leaders in the market. At Salentica, we had 30% of the largest RIA’s in the industry using our CRM. For large RIA’s looking for a CRM, we were on their list to look at, which generated inbound inquiries. We were also selected for strategic relationship with the custodians that RIA’s relied on, partly based on our market share. The custodian relationships helped drive more awareness and inbound leads.
For a new company, it may be necessary to pursue several different product opportunities early on. However at some point, it is important to prune the products that cannot be market share leaders and focus the firm’s resources on the product that can. Jumping into unrelated markets with a product takes away from the goal to develop market leadership in the target market. With a proven product and client base, it is best to look for opportunities to expand functionality within the target market to increase the revenue potential for a sale and provide opportunities to have add-on sales to the current clients.
At Linian, after we had over 65% of the mutual fund assets in Canada being valued by our solution, we expanded our product to provide portfolio modelling and trading. The new functionality opened up new opportunities in existing clients and our brand in the industry enabled us to acquire new wealth management clients that needed portfolio modelling and trading, but not mutual fund accounting.