Featured in Professional Services Journal Issue 2 - Growing Profitable Clients  

5th March 2009

PSF Journal - PDF version

Your firm’s growth and profitability is less about acquiring and maintaining more clients, and more about strategic selection and retention. Many 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 realised 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.

Case studies
At Boss Management, we see these issues up close across a wide range of firms. Here is a comparison between two organisations we’ve worked with to give you an insight into the analysis you need to complete and the results that can be achieved.

Client A: Too busy to change course

Client A is an accounting firm and has closeto 700 clients (I’ll round the numbers for convenience). Their revenue is $2.5 million per annum with 10 per cent earnings before interest and tax (EBIT). The firm’s largest client accounts for $170,000 of its annual revenue. The next largest client delivers $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 per cent of the client base generates approximately 90 per cent of the firm’s revenue. They therefore have roughly 500 remaining clients who contribute a very small percentage to the business.

The firm’s 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 workload. The much anticipated ‘potential’ of the small clients to grow into major clients has yet to manifest. Meanwhile, their team is under constant pressure to manage the volume of activity.

Client B: Refocused after non-strategic growth

Client B is a niche consulting firm that was 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 while 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, the results were startling:

• 6 per cent of the active client base represented close to half of the firm’s revenue.
• More than two-thirds of the client base was less than one-tenth the size of the largest clients.
• Growth was coming from more and more small clients.
• 30 per cent 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 counterproductive to attaining the firm’s intended niche position in the market.
• Most of the consultants in the firm acted independently so there was no overall strategic focus on specific existing or new client acquisition and growth targets.
• Roughly 90 per cent of the firm’s activities were focused on achieving sub-optimal outcomes.

Client B was amazed at the results. The firm immediately focused on turning around the situation and moving its clients, and its focus, back up the value chain.

In the next year, revenue grew 38 percent, profitability increased 7 per cent, the existing client base was systematically reduced by 40 per cent and new clients acquired in the next year matched the ideal
client profile, which was reset for the firm.

To put this into numbers, the firm’s revenue grew from just over $6 million in 2006–07 to almost $8.5 million in 2007–08, while its number of clients fell from 380 to around 225.

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. The consultants took a strategic view of their clients, always considering how they could add more value and grow their clients’ (and their own) value to the firm.

Lessons learnt
Client B is now a well-oiled machine with a very clear focus on growth and matching its 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.

In order to maximise the value of your client base, it pays to:

• analyse the numbers
• identify your most strategic and most high-potential growth clients, then allocate resources appropriately
• set target growth goals for different tiers of clients as well as individual clients
• identify clients that are low-value, low-potential, high-maintenance or high-cost and decide whether to divest or retain them.

HOW TO DIVEST CLIENTS
Depending on the driver for your decision, here are some tried, tested and professional ways to divest your firm of clients:

• raise your fees to a level that will ‘tip’ them over to another firm
• tell them your firm has made a strategic decision to focus on a particular specialisation or market niche and cannot continue to offer the services they need
• introduce your client to a smaller firm or an individual practitioner. If there is a problem in the relationship and you no longer wish to work with that client, there are two options depending on the size
• of your firm and how many practitioners you have.

In a large firm, you could try to restructure the team that is involved in working with and managing that client.

At a small firm, you can have an honest conversation with your client and let them know how the relationship is making you feel (uncomfortable, not valued, frustrated, confused, etc) and explain why. Either ask your client what they suggest you do to improve the situation or suggest you part ways. They’ll either agree or you can work out what needs to be done to improve the relationship.