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Archive for July, 2007

Not All Clients Were Created Equal

July 13th, 2007

There’s a time honored principle that’s alive and well in the accounting profession which every client I talk to is well aware of, yet so many practitioners fail to act on.

Not all clients bring the same value to the table.

This is well understood by top performing firms. However, most firms are willing to accept any new client who walks through the door without giving consideration to whether a profitable relationship is likely to be created. It’s more like…”If you have a pulse? We’ll work with you”!

A North American study found that in the financial services sector, 20% of clients contribute on average 225% of a firm’s profit and the remaining 80% consume 125% of profit.

I’m not suggesting that this applies to your firm but I know from our involvement with thousands of firms that the cost of servicing the bottom 80% of clients is between 25% and 50% higher per hour than the top 20%.

I also know that the quality of referrals from the bottom 80% of clients is nowhere near as good as it is from the top 20% and yet for many firms, most new growth comes from acquiring low level clients.

The key to client selection is to identify and nurture clients on behalf of whom you can add most value. They have the greatest potential to grow as a direct consequence of working with your firm. These firms are fiercely loyal and become strong advocates.

Boot Campers and Principa firms around the world have been using Principa’s 11 point Client Selection Criteria for the past decade. Among other things, it recommends assessing the potential client on the basis of the number of years they’ve been in business, their willingness to listen to advice, the competitive landscape in their industry, their personality, their profit improvement potential, the degree of sophistication of (or lack thereof) their management processes and planning systems are important considerations when selecting clients.

It gives me a great kick to hear about the long-term effects on practice growth and the quality of life our members are enjoying as a result of applying the Client Selection Criteria. Like the email I received from Mike Amspacher (Vancouver, Washington) a little while back. In it he describes how the bulk of his referral work now comes from his ‘A’ class clients and new clients are coming to him specifically because of the value added services he offers.

In a similar vein I received a note from Tony Wolf, a Canadian practitioner, who told me that after 3 years of diligently implementing our client selection strategies he and his team are making more money than ever before, they’re loving their work again, they barely work overtime and have a fantastic group of clients.

And Peter Cox, a UK practitioner, has strict client selection criteria including a mandate that the minimum fee is £2,500 (about $US5,000). Guess what’s happened to his profitability since he implement these policies. More to the point, guess what’s happened to the quality of his clients and the quality of work he can now do for them because they are not totally focused on getting the cheapest job done.

The kings of client selection are my good friends Paul O’Byrne and Paul Kennedy who have an enormously successful practice in Goffs Oak, London, UK. They down-sized their client numbers from 550 to about 50 and super-sized their minimum fee from £1,000 to £10,000. Needless to say life is a lot better for them, their team and the clients they now work with.

To discover how they did it and how you can too, you’ll want to participate in the workshop they are leading at our Annual Conference in Vegas this October.

If you want your firm to shine you must have a shining client base.