Not All Clients Are Created Equal…
Here at First Follower we design and execute growth strategies for professional services firms.
Growth can mean different things to different organisations. The first thing we do is ask about the desired future state, and how the firm is looking to grow. For example, is the organisation looking to:
- Increase revenue;
- Increase profitability; and/or
- Increase market share.
When we pose this question, often the response is around ‘Yes, yes all of that - we just need more clients!’ Hmmm…not all clients are created equal.
Profitable and sustainable business growth comes from strengthening existing relationships and systematically targeting higher value clients. A better type of client if you like.
‘But…how do you do that?’ says Ms CEO.
By looking at the evidence. We analyse the client data to identify where the money is coming from and from which clients. Our approach is technology agnostic. We can work from a spreadsheet, a big CRM such as Salesforce or Microsoft Dynamics or a smaller CRM such as Nutshell. We can extract information from financial systems such as Xero or Quickbooks.
Now I can hear many of you thinking yes but that is revenue, not fees, or profit or or or… The metric doesn’t matter for this purpose. The point is to understand where the money is coming from and from who.
Then we build the firm’s Client Hierarchy. This is a powerful methodology which segments the clients into the following categories:
- Premium clients represent the highest value, either financially or reputationally and should be prioritized by the business;
- Growth clients should be nurtured to increase spend & become active advocates for your business; and
- Base clients represent high volume, low cost of sale. This cohort needs to be actively managed to minimise drain on resources.
Note many advocate cutting this ‘long tail’ or ignoring this segment. We don’t. We believe this can be a highly profitable group of clients if managed effectively – think of this as the McDonald’s drive-through on a Friday night with the kids after they have finished their sporting activity. It is a high volume, low customisation option (sweet and sour or tomato sauce) but it is still generating significant revenue. If the client knows this is the drive-through option and that is what they need/want, then go for it. Just know what it is you are serving to them. Issues arise when the client wants a McHappy meal and you are trying to offer them an al a carte fine dining experience. Or vice versa…but I digress.
We then present the Client Hierarchy. It is usually at this point Ms CEO (and her CFO is usually in the room by now too, what evidence-based business development!) have the ‘Oh my goodness moment’. Because by now we have overlaid the FTE data, demonstrating which of their valuable human resources are servicing which client cohort.
It is often the first time they have been given this insight, with findings which may demonstrate their most valuable clients are receiving the smallest amount of attention. Or their most valuable cohort is in fact the base cohort, generating X% of their firm’s profit.
And so on.
The findings obviously differ depending on the size of firm, FTE and geographic location.
Nonetheless First Follower’s principles hold true regardless:
- Each client cohort requires a different level of focus to ensure they generate the greatest return on investment to the firm;
- Where appropriate we want to take the client to the next level;
- But this isn’t always possible, and you may need to ‘let go’ some clients to increase overall profitability.
It is only after First Follower has undertaken this analysis will we begin to design your growth strategy, which may not be about getting ‘new clients’ rather it may be about managing your existing clients more effectively and attracting a better type of client.
Remember, we want to:
- Reduce less profitable clients;
- Nurture growth clients; and
- Invest in premium clients.
And this requires leadership, discipline, focus and execution. Which we will talk about in our next article ‘Business Development is Not Sexy’.
Ceinwen McNeil is the founder and managing director of First Follower, an international strategy consulting firm which designs and executes growth strategies for professional services. Drawing on over twenty years of business development and client management experience in both the public and private sectors, she founded First Follower to enable businesses to successfully navigate step growth change. Ceinwen’s direct approach, commercial acumen and exemplary stakeholder engagement skills make her a highly sought-after adviser. Visitwww.firstfollower.com for more information.