Client growth is essential to growing your business, but many businesspeople don’t take a strategic view of client growth, and only focus on the acquisition of more and more clients. It costs on average 5-10 times more to source new clients than to work with and keep existing clients.
It makes sense to adopt an ongoing strategic approach to growing the value of your clients as good business practice, whether you have 10 or 1,000 on your database. These four steps will start you on the path to unlock the potential in your business and accelerate your growth opportunities.
Step 1: Unlock potential, look at revenue history
Step one is to pull together all your sales revenue figures for say the last three years, by client. Ideally you can export the information from your accounts program, or even enter it manually into a spreadsheet.
However you pull the information together, your objective is to have a list of clients down the left-hand side of your spreadsheet or page, with the years across the top: three years ago, two years ago, last year, and revenue expected for the current year.
|
Client Name |
Value 3 Years Ago |
Value 2 Years Ago |
Value Last Year |
YTD & F’Cast Value This Year |
Cumulative Value |
|
Name 1 |
25,000 |
30,000 |
33,000 |
47,000 |
135,000 |
|
Name 2 |
0 |
18,500 |
2,000 |
0 |
20,500 |
|
Name 3 |
11,300 |
26,760 |
39,990 |
52,000 |
130,050 |
Once you’ve done that, you can sort by client name for easy reference. If you have many clients, an alphabetical sort by name will highlight any duplicate entries you may have made, and it’s also easier to locate clients alphabetically.
The cumulative value highlights the value that any given client has contributed to your business since you started working with them. This is often a surprise because most people focus on what the sales revenue will be from a client in any given year, not necessarily their total value to the business over time.
Finally, have a look at the clients that are forecast to generate the most revenue for your business in the current year. If you do this at the start of a new financial year, sort by value last year, but if you do it closer to the end of the financial year, you can sort on YTD and forecast value this year.
This highlights who your most valuable clients are each year, and what they contribute to your business over time, and of course, which ones are most important to your business.
Step 2: 80/20 analysis
This is always enlightening!
To do this analysis, assume you have 50 clients. Take the top 20 percent and add up what those 10 largest clients contribute in terms of total revenue. It’s bound to be a large percentage. It may not be 80 percent, but it will be high. That will show you where the bulk of your revenue is coming from.
I have seen examples where six percent of a company’s 200-plus client base generated almost half of the revenue!
You can double your business by focusing on acquiring or growing more clients with the same profile.
It makes you then question what’s happening with the other 50, 80 or 90 percent of you clients? What you want to focus on is how to duplicate those clients that bring in such a high percentage of your revenue. You want more of those! It’s important to understand why those clients have come to you and why there is such a good fit between your business and what they want.
Step 3: Value trends
Trends identify future potential and risks. They show which clients are growing, in decline, inactive, or new and as yet unknown.
Some inactive clients, for example, could potentially generate considerable revenue and potential for growth, when reactivated.
If you have clients that you would like to retain but they’re currently inactive, it means that you spend a lot of energy acquiring them and little if any time following through and servicing them.
A simple acronym I use to categorise the trends with client revenue is ODICE?:
O = Opportunity exists for growth
D = Decline in revenue – you need to know why
I = Inactive
C = Constant revenue
E = Exit time, when you no longer wish to work with a client
? = Not sure – may be new client or client in change mode, etc
Each of these trends has corresponding actions that you will need to take with your clients, and incorporate into your business growth or practice plans.
If you need to exit any clients, then do so. If you need to reactivate them, then do so. If they need to be nurtured and looked after, then do that. If you need to find out more about their needs and the opportunity to grow your relationship, then explore that.
The goal is to have clients that generate a consistent (predictable) stream of revenue for your business, and those that represent growth.
Step 4: Setting new tiers for growth
Go through your client analysis sheet, and categorise your clients into four tiers. Use tier values that work for you; this process is based on judgement, not a mathematical formula.
For this example, let’s say your largest client generates more than $100,000 a year for your business. That client would be tier one. You have four that generate $50,000-to-$100,000 a year; let’s put them in tier two. You have 18 clients in the $10,000-to-$50,000 category and we’ll put them in tier three. The rest are in the lowest tier, tier four.
What you need to do is look at the value tiers you currently have for your clients and decide what you’d like those tiers to be next year. If your top tier today is $100,000-plus, make it a goal to have top tier clients worth at least $150,000 next year. If your top tier today is 10,000 plus, then make it a goal to have tier one clients that bring you 20,000 a year!
Then today’s tier one becomes tomorrow’s tier two, and so you grow.
|
This Year |
Target Tiers Next Year |
||||
|
Tier 1 |
100,000+ |
1 |
Tier 1 |
150,000+ |
1 |
|
Tier 2 |
50,000-100,000 |
4 |
Tier 2 |
100,000-150,000 |
3 |
|
Tier 3 |
20,000-50,000 |
18 |
Tier 3 |
50,000-100,000 |
9 |
|
Tier 4 |
< 20,000 |
25 |
Tier 4 |
20,000 – 50,000 |
22 |
Now imagine for a moment that next year you have three clients just like your largest client last year, and the largest client is worth more than $150,000 a year in revenue. What would that do to your business?
These four steps will uncover the potential and the opportunities to grow your client value and grow your business, and:
-Identify where to spend your time, and which clients to focus on, to maximise revenue
-Profile what you want new clients to be like
-Keep aiming higher
—Jenny Stilwell is managing director of Boss Management Group (www.bossgroup.com.au), which provides strategic advice and support to help business owners get clear on strategy and the right structure for growth.
