Profitability through dinosaurs?
Often during my training sessions on client service, client management, relationship management or key account management (KAM) with lawyers, accountants and surveyors I’ll spend some time drawing dinosaurs. And last week I was finally persuaded to share my ideas on a blog.
Onwards plods the Diplodocus
You see sometimes I describe a professional firm’s client portfolio as a Diplodocus. In Monty-Pythonesque simplicity it is very small at one end, big in the middle and then it is small again at the other end. Well, not quite. You obviously need to analyse the financial information – and some professional service firms are not good at understanding the profitability of specific clients.
At the head – Key clients
The head of the client portfolio are those few clients that contribute most profit. They are so valuable that there would be instant death without them. Put a crown on that head and they are the crown jewel clients on whom you focus in your Key Account Management (KAM) programmes. Often the Pareto effect holds true – 20% of your clients generate 80% of your profits.
In the middle – Your good clients
The large bulk of your clients are good – reasonable revenue and fair profits. You spend time with these folk delivering excellent service and hoping that maybe one day that they will grow – by using more of your services. You are likely to consider cross-selling to these clients too.
At the tail – Demanding unprofitable clients
And then there are all those small, not-so-profitable clients at the tail. Often they are quite demanding. Often they exert enormous pressure to reduce fees. They are unlikely to grow. To add insult to injury, they may delay or refuse payment. Yet they take an enormous amount of time to manage and service. After all, you are a professional and want to always deliver a high quality service – no matter who the client might be.
Cut off the tail!
You need to do some client pruning. Cut off that tail. Free up your fee-earners from dealing with grumpy, never-satisfied, unprofitable clients. They can then devote that time to more profitable clients – or even generating new ones.
How do you cut off the tail politely? Well, you can raise your prices. If they defect, then they become another firm’s problem. If they pay the higher price then they’ve moved out of the tail.
Sometimes fee-earners are reluctant to cut off the tail because they fear they will not be able to replace the chargeable hours on their targets. So change the targets from hours and fees billed to profits and payment times.
The T Rex strides in
Once you start cutting your tail, your Diplodocus morphs into an impressive T Rex.
The T Rex has a much larger head – that’s more of those valuable high profit key clients. It still has a bulky middle but it’s much faster and more mobile now. It might even be in a position to snap up some of those smaller, weaker dinosaur competitors.
And that tail has shrunk – adding to the lightness that everyone feels now that those less profitable clients who drained our energy and dragged us down have gone.
But please remember that dinosaurs were reptiles. And when you cut off the tail of a reptile, it just grows back. So regular tail trimming is required.