In spite of a down economy, there are a lot of firms who are pushing past average industry growth rates. How are they doing that? Any farmer would point out the answer is obvious but somehow we miss the obvious. Those growing firms are focused on nurturing and harvesting new work from existing clients. There are some numbers that support the approach to client relationships these growing firms have adopted. It costs seven to 10 times more to bring in a new customer than solicit an existing one. This statistic is not new, we've all heard it before so it is easy to ignore. However to ignore this truth is to put your firm's future in jeopardy. Here are some questions that will help your firm stay focused on harvesting the best fruit from your existing clients:
1) What is the average cost of acquiring a client? Not sure? The average cost of acquisition can be anywhere from $5,000 to $8,000. This is a huge number when you compare it to taking your clients out to lunch once a quarter or investing the time to bring your staff out on a field trip to get to know the client better and open up the eyes of the team to identify client needs.
2) What is the lifetime value of a client? Let's say a typical client is worth $5,000 per year to the firm and they stick around 20 years, that's $100,000. That number does not even account for referrals. That's a great number to know. In fact, everyone on your team should be aware of a clients' lifetime value. But even more significant is the fact that businesses are turning over much faster. Today, having a client stay with you 10 years is a real bonus. That means you have to recoup your investment in acquiring the client over one half the lifespan of previous relationships.
3) What is the marginal net worth of new services to existing clients? Let's make a couple of assumptions 1) the new services are higher value and 2) they can be blended in with existing activities. Outcome: Higher value work with little or no additional time invested yields higher realization rates on new services.
4) What are the odds we will lose this client if we don't pay closer attention to their needs? The "Rule of Seven" indicates that the more services you can provide a customer the less likely they are to leave you.
These four questions are at the core of the winning strategy that is making a difference for savvy firms. There is a second strategy at play here that makes the first strategy more effective and that is to eliminate the fruit (clients) that will never ripen. We always get a better yield from the tree if we "thin" out the fruit early in the season; thinning the fruit to prevent overcrowding opens up the branches for more light and air and results in more water and nutrients available the remaining fruit.
Bottom line: Working to harvest new work from existing clients requires consistent nurturing but, in the long run, is cheaper (and more rewarding) than chasing new work with new clients. Most practitioners say they would rather have fewer well serviced, loyal, delighted clients who appreciate the value they bring to the relationship than hundreds of clients where the scope of opportunity is limited.
Make it happen: Carefully examine your client list. Look at their potential for new services and give them an opportunity ranking. Meld that ranking with your other ideal client criteria such as annual fees, ease of interface, ethical behavior, etc. And then set a plan in motion to spend more nurturing time with ideal clients who have a higher opportunity score. And don't just say you will, make it a firm performance standard that every client on the opportunity list must be met with at least twice a year outside of the regular course of the relationship. Build into the process some accountability; a partner who does not adhere to the performance standard receives less credit for the billings associated with that client.
