IS YOUR ORGANISATION FOCUSING ITS CLIENT DEVELOPMENT EFFECTIVELY?

For professional services firms that operate in areas where clients have a continuing need for their services, I believe you can confidently say ‘yes’ only if you can answer the following questions:

1. What is the current level of revenue and profit from each existing client by line of business?

2. What is the current health of each relationship by line of business, as indicated by the likelihood that the client will continue to award a comparable level of business to the firm for the foreseeable future?

3. What is the nature of the firm’s relationship with each client, as defined by the proportion of the client’s spend in each line of business it currently wins?

4. What is the likelihood that the firm could deepen or broaden each relationship by line of business?

A small proportion of new business enquiries typically convert to business won. This means that valuable staff time is being invested in client development efforts that have a low probability of generating revenue. This can cause staff to become disengaged from worthwhile client development activity. Professional services firms can improve their financial performance by using the answers to the questions above to focus client development on securing valuable at-risk clients and growing existing healthy relationships before pursuing new clients.

IDENTIFYING AND SECURING AT-RISK CLIENT RELATIONSHIPS

Charting the answers to the first two questions highlights the ‘at risk’ clients and the associated income. Most firms know the revenue and profit that they earn by line of business from their major clients. They can (or should be able to) rate the current health of each relationship, as indicated by the likelihood that the client will continue to award a comparable level of business to the firm for the foreseeable future. This can be colour coded with the standard traffic light approach: green – likely; amber – unclear; red – unlikely. Combining this data into a simple chart can highlight the security or otherwise of the firm’s revenue.

In this illustrative example, £47m (14%) of the total revenue of £358m is in the red category indicating that the client is unlikely to continue business with the firm at current levels, while £40m (12%) is in the amber (uncertain) category. This implies significant client development challenges if the firm is to maintain current revenue levels.

For clients where revenue is at-risk (assessed as red or amber status), the firm needs to understand why that rating has been assigned. This could include factors beyond the firm’s control such as change of ownership, changes to the client’s business or a policy decision by the client to reduce the number of firms it uses. Adverse ratings could also be due to a poor fit between the firm’s expertise or style and the client’s requirements. The rating could also be due to service delivery issues, where the client is unhappy with how matters have been handled, or to poor chemistry between key client executives and the assigned partners and staff.

If the firm believes the relationship can be recovered, it will need to implement an action plan and continue to monitor the health of the relationship. Alternatively, it will need to exit in a professional manner.

GROWING EXISTING HEALTHY RELATIONSHIPS

Most firms are eager to grow existing client relationships by winning more of the client’s spend in areas where the firm already serves them (deepening the relationship) or winning

spend in areas where the firm does not currently serve them (broadening the relationship). Clearly, it makes sense to do this only where the existing relationship is healthy.

The firm can prioritise its efforts to develop those healthy relationships by combining the answers to questions 1, 3 and 4 above.

The nature of the firm’s relationship with each client can be defined by reference to the proportion the client’s spend in each line of business the firm currently wins. For example: preferred advisor – winning at least 60% of spend; trusted advisor – winning at least 30% of spend; valued advisor – winning at least 10% of spend; occasional advisor – less than 10% of spend. It is not necessary to have precise numbers to benefit from this exercise. However, if the firm does not have some broad sense of the nature of its relationship, it is not obvious that it can make an informed decision on how best to allocate its client development efforts.

Charting the share of client spend can suggest opportunities to deepen and broaden relationships.

Client A Client B Client D Client H0%

10%

20%

30%

40%

50%

60%

70%

60%

20%

40%

5%10%

65%

20%15%

50%

5%

40%

10%

ILLUSTRATIVEShare of Client Spend by Client and Line of Business

Green Clients Only (% of Their Total Spend)

Line of Business X Line of Business Y Line of Business Z

In this illustrative example, the firm has quite different shares of spend by line of business across its client list. It might usefully ask why this is the case, and whether there are opportunities to deepen or broaden each of these relationships. For example, what is the potential value of winning more of Client A’s spend in line of business Y and moving from the current valued advisor relationship (10% of spend) to trusted advisor status winning at least 30% of spend. In contrast, there may be little opportunity to grow the level of business

from Client A in Line of business X or from Client B in Line of business Y, so the emphasis needs to be on protecting these relationships.

The potential value of growing a relationship needs to be balanced with the feasibility of doing so. This is the fourth question above: what is the likelihood that the firm could deepen or broaden each relationship?

To guide the allocation of effort and encourage engagement from the relevant partners and staff, I have found it useful to split potential opportunities into four categories that clarify their true nature.

The firm should be directing its client development activity towards identifying and cultivating ‘stars’ that have the potential for a long-term relationship with mutual benefit. In doing so, it is important to consider not just current year revenue or profits, but the revenue and profits that would likely be generated over the typical lifetime of such a relationship. The firm needs to be wary of wasting resources on apparently attractive opportunities where there is little chance of success. These ‘black holes’ need to be identified and culled early. Diary fillers can be useful, particular in challenging times. However, the firm needs to ensure the client development effort invested in these relationships recognises their limited potential and does not distract attention from more valuable opportunities. The firm also needs to avoid wasting efforts on potential opportunities where there is no real interest

from either side, but which may linger on the firm’s client relationship management system unless deliberately culled.

SUMMARY

This paper suggests that firms should focus their client development activities on securing at-risk client relationships and growing healthy established relationships. While this may seem like common sense, it is not obvious that it is common practice. Answering the four questions suggested above can provide a starting point for more focused client development that can then be embedded in performance measurement systems and targets. While the precise nature of the client development will properly depend on the firm and the individual client, it will likely require better dialogue with clients to properly understand their needs and how well the firm currently meets those needs.

© Tom Ryan, 2016