Why it’s OK to play favourites with your clients
Tue 27 November 2018 - 12:18 pmSmall Business
Growth can mean different things to different organisations. Growth can be a mindset, of the founders, investors, employees and stakeholders. A vision for growth can be a powerful motivator.
However, there comes a point where growth needs to be translated into tangibles. This can mean be measured through a range of metrics, for example:
● Revenue growth;
● Profitability; and/or
● Market share.
But how does this occur? It can be through winning new business, acquisition or through strengthening existing relationships and systematically targeting higher value clients. A better type of client if you like.
Profitable and sustainable business growth can from all three sources. However, to effectively grow the following three questions need to be considered:
1. What is our desired future state? Three years from now we want to be…
2. Who are the clients we want to work with, who value our expertise and are prepared to pay for the value created?; and
3. What does our organization need to do to achieve this?
When we consider the firm through this framework, we use an evidenced based methodology to determine the current state of the organization and build the firm’s Client Hierarcy
This segments the clients into the following categories:
1. Premium clients represent the highest value, either financially or reputationally and should be prioritized by the business;
2. Growth clients should be nurtured to increase spend & become active advocates for your business; and
3. 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 that can generate 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.
We then overlay the FTE data, demonstrating which of their valuable human resources are servicing which client cohort. More often than not this is the first time an organisation has considered which clients are of highest value to the firm and being serviced by who. Depending on the organisation’s delivery model (bespoke, high value consulting, hybrid or low customisation, high volume) the data will reveal insights into which category clients fall into. The firm can then make an informed decision as to who and how the cohort will be serviced. Recruitment or restructuring may be required to facilitate the growth required to achieve the desired future state. Alternatively, the organisation may realise they are achieving significant commercial success with a segment of clients they had previously undervalued and a strong business case exists for further investment.
Regardless of the findings, Ceinwen McNeil from First Follower recommends the client hierarchy principles hold true in all of these scenarios:
• 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’ of some clients to increase overall profitability and replace them with your ideal client, who are committed to a minimum level of spend with your organization.
Growth is not always about getting ‘new clients’ rather it may be about managing your existing clients more effectively and attracting a better type of client.
To summarise. The First Follower Client Hierarchy comprises of three cohort’s premium, growth and base clients. To grow effectively and sustainably, we want to:
1. Reduce less profitable clients;
2. Nurture growth clients; and
3. Invest in premium clients.
And this requires leadership, discipline, focus and execution.
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.