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Which Client Are You?
23 June 2011
‘All clients are created equal, but some are more equal than others…’
Growth and profitability for your firm is less about acquiring and maintaining more clients, and more about strategic selection and retention. Many (most) firms grapple with this concept, as it appears counter-productive to expend energy in acquiring clients, only to let some of them go, and there’s always the consideration of the potential that a particular client may bring to the firm in the future.
Unless clients are proactively managed through a client growth process, the value to your firm will be realized a lot more slowly and the returns are unlikely to be as high when you let the client drive the process. The resources that your firm needs to employ in order to acquire and service your clients, is also a key consideration in how you grow your client base.
Which ‘Client’ Are You?
By way of explanation, here is a comparison between two client case studies:
Client A is an accounting firm and has close to 700 clients (I’ll round the numbers for convenience). Their revenue is $2.5M per annum with 10% EBIT. The largest client for this firm is worth $170,000 per annum. The next largest client is worth $80,000. They are high value national clients that require a high level of attention, service and nurturing.
Excluding these two clients, the top 30% of the client base generates approximately 90% of the firm’s revenue. They have roughly 500 clients who contribute a very small percentage to the business.
The two Partners are reluctant to proactively do anything with their client base – either divest or strategically grow – and as such, continue to have significant strains on their existing resources as they struggle through the client work load. The much anticipated ‘potential’ of the small clients to grow into a major client, has yet to manifest.
Client B is a niche consulting firm. They generate $8.5M revenue, and have a client base of around 225 clients. They were always in client acquisition mode, measuring success in part by the number of new clients brought into the firm. They focused on their core service to bring the new clients in, and whilst they targeted their specific niche market segment, they were less attentive to the size or type of clients they acquired.
When they went through the client growth process some of the results were startling:
- 6% of the active client base represented close to half of the firm’s revenue
- More than two thirds of the client base was over 10 times smaller than the largest clients
- Growth was coming from more and more small clients
- 30% of the firm’s clients had been inactive for the last two years
- There was declining growth of high value clients in the top value tiers
- These trends were counter-productive to the firm’s intended niche position in the market
- Most of the consultants in the firm acted independently and as a result there was no overall strategic focus on specific existing or new client acquisition and growth targets
- Roughly 90% of the firm’s activities were focused on achieving sub-optimal results
Don’t Be Scared to Be Ruthless!
Client B was amazed at the results, to say the least, and we immediately focused on turning around the situation and moving their clients, and their focus, back up the value chain.
In the next year, revenue grew 38%, profitability increased 7%, the existing client base was systematically reduced by 40% and new clients acquired in the next year matched the ideal client profile which we reset for the firm.
The marketing focus of the firm for that year was then balanced between new client acquisition and strategic client growth, with the firm’s core activities bringing optimal results.
Client B is now a well-oiled machine with a very clear focus on growth and matching their clients to their firm.
Client A is still experiencing resource issues, and is too busy doing client work to stop and take a strategic perspective on client growth.
Which client are you?
© Jenny Stilwell. All Rights Reserved.
Jenny Stilwell provides advice on strategy and business growth for professional, lifestyle-oriented business owners who want to grow the value of their businesses and ultimately spend less time working in them. For more resources and business strategies that will help you create a better business, visit http://www.jennystilwell.com.au