The reaction can occasionally be dangerous when you ask top management of an accounting firm, “When did you last fire a client?” The question seems distasteful and counter-intuitive to most leaders of these firms. There was certainly a time when bragging rights (and presumably higher revenues) went to the firm with the largest client base.
The business environment in which accounting firms operate and compete has changed dramatically in the last 10 years. The economy has changed and the markets have changed. Most of the firms that still strive to win the largest client base are experiencing the change. Some of these firms are being acquired or closed. Their leaders have suddenly realized that the thinking of potential – and current – clients is changing.
Clients and potential clients have begun to understand that nobody is equally adept in every aspect of accounting. Although the profession has developed niche practices, in many locations it seems that every accounting firm provides services in the same niches. This uniformity does not enable any firm to differentiate itself from all of its competitors.
While many firms still hold to the old notion that every accounting firm can meet the needs of every client, some firms – and some CPAs – are building micro-niches around their unique expertise and interest. Although they are not firing current clients, their business development activities focus on their micro-niche. Some are looking at their current book of business and deciding to free up time by transferring the bottom 1% of clients to others
As I talk with partners in accounting firms, I hear the same assessment of their client base – the 80/20 rule is true and they spend 80% of their time on clients who are not (and probably never will be) highly profitable for the firm. They know these clients have poor realization, poor payment records or just treat the firm disrespectfully yet they never consider firing them. Either they are afraid they will not be profitable without these clients or they are afraid they will not be able to attract the profitable clients.
What would happen if your firm could switch quantity for quality? What would you expect to happen if you could focus your time, marketing and attention on the clients who are loyal, use several services, pay promptly, accept rate increases and depend upon your expertise? I think several things would happen.
- You would have more time to devote to gaining a deeper knowledge of your best clients’ businesses.
- You would have more time to learn more about the industries in which your best clients do business.
- Because of this knowledge, you could identify additional services of value to your clients.
- Because of this knowledge, you would be on a path to becoming the expert on the needs of other prospective clients like your best clients.
- Because you have the knowledge of the businesses and industries of these clients, you gain the visibility that attracts the attention of other clients.
- Because you have recognized and cultivated your unique expertise, you are in a position to build a micro-niche business around it.
- Micro-niche products and services can combine into packages priced higher than the total prices of individual services combined.
- Services to micro-niche clients build upon expertise and merit premium pricing.
According to Anthony K. Tjan, in a recent post on the Harvard Business Review blog network, the “threshold for a high-quality-of-revenue business is a revenue recurrence rate of over 85%, meaning losing no more than 15% of a customer base this year.” (http://blogs.hbr.org/tjan/2011/08/its-time-to-fire-some-of-your.html) This gives your business a “higher predictability,” meaning that you are then able to allocate resources where they can do the most good. You can
- Focus marketing efforts on winning the right clients
- Stop trying to collect from people who are slow to pay for services
- Stop wasting time on clients who are never prepared
- Stop spending as much time on clients who use single services
- Stop spending as much time on clients who use only basic services
Knowing what is at stake and how much your business could change, I’ll ask the question of you now, “When did you last fire a client?” Isn’t it time to start reviewing your book and firing some of your least profitable and most time-consuming clients? Isn’t it time to start building a micro-niche around the work you most enjoy and know best and charging the premium prices you deserve?