As a business we are constantly assessing what we do for our clients and striving to improve our service and to add more value to each of them. In that respect we manage information carefully to help us to do that, for example by regularly reviewing and sharing the details of the top 10 clients for each of our Partners.
There are various reasons for doing this, including…
- When we see what high value work our colleagues are doing on their clients, it often flags up opportunities to help our own clients with that shared knowledge. So if one has a client that has invested in work to protect their wealth or implement an idea that saves tax, we are all prompted to think of others who may also benefit.
- We can sometimes get immersed in the detail and forget that many clients are making significant investments in complex projects simply on the basis that they trust our advice. Seeing this in hard numbers is a good reminder to say thank you and to ensure we don’t take these clients for granted.
- These top clients will often be the bulk of our work in any month, so knowing what is going on across all of them helps us to plan resources and ensure we are always available when needed.
In the last review, we found that some of these top clients have spent well over £1m with us! There are two key elements to this, firstly many of them are investing significant sums in work to help drive their business, save tax, protect wealth, or in special projects to buy or sell assets or businesses. The more complex the work, the higher our fees, but the easier it is to add value many more times the amount we charge. The second aspect is that many of these businesses have been clients for many years, and continue to trust us to find ways to add value to them and their businesses.
So there are some key messages for all businesses here…
- Always think of customers in terms of their lifetime value to your business. They may only spend a modest amount each year, but if they continue to do that over many years, their lifetime value may well be significant. The cost of winning and then churning customers can be huge compared to the cost of looking after and nurturing them to remain customers, spend money and recommend others.
- It is easy to neglect customers that just quietly place orders and pay their bills, whether they are big spenders or not. Time can often be sucked into looking after those customers that complain a lot, argue about the price or are just challenging to deal with. Make sure your best customers get at least the same attention that your worst ones do! Or better still, get rid of the terrible ones and spend the time looking after the good ones and finding more of them.
- It is always more profitable to sell extra services to existing customers than it is to try and sell to new ones. We know many of our clients really value the proactivity of our advice, and our attention to customer service as we regularly take them ideas on a wide range of issues that they may want to consider. Yes we do this to show clients we value them, have ideas to bring, and want to deliver on the promises of proactivity we made at the start, but it is also just good business. The last £1,000 of fees raised is significantly more profitable than the first £1,000.
One of the interesting dynamics of many businesses is that they grow their turnover but often make less profit. This can be very hard for them to understand as common sense suggests that some overheads are fixed, and so getting bigger should make higher profits. Classic economies of scale. So why is it so often the case that the opposite occurs?
A recent Healium project found that one business had around 66% of income coming from just the top 5% of customers, and just 2% of income coming from the bottom 50%! These low value low volume accounts just suck resources out of the organisation. Further analysis suggested that more than 75% of transactions with these bottom customers actually costs the business money to fulfil.
These are not unusual statistics and we have covered them many times in previous mailings and seminars. The point is that these are the easiest ones to win when a business tries to grow. Whilst turnover may increase, it is increasing the number of low value, loss making customers. These are also the ones that are most likely to go elsewhere for a penny off the price.
The objective for every business should be to grow ‘quality’ not ‘scale’.
Just work out what the average customer spends in your business (total sales divided by number of customers). Each time you take on a customer that spends less than this you are diluting the quality of your customer base. Each time you take on one spending more you are improving the quality of customers.
It is a common mistake for businesses to focus on growing scale rather than quality. We have all heard of “economies of scale”. The bigger you are the more efficient you are. Well that may work for Tesco or Amazon, but for 90% of normal businesses bigger very rarely means more efficiency.
So what does that mean right now as businesses look forward to a brave new post Covid world?
- Make sure you know who your best customers are and make sure they know you appreciate them. They are key to your business and the ones your competitors would kill to steal off you.
- Work out who makes you money and who loses you money. Sack the loss making ones or jack their prices up.
- Make sure your marketing and sales people are very clear on the size and type of customers you want to win. Who dilutes quality and who improves it?
- Grow quality not scale.
If you want any more help on this, just call.
THINK PLAN ACT