power your advice

Are You Really Ready to Trim Your Client Base?

We should sell off or sack “C” grade clients, shouldn’t we?

Maybe not….there just might be a better way….

The arguments for getting rid of them that are continually put forward seem to be:

  • They don’t appear to present growth opportunities for our practice.
  • They are unprofitable.
  • They are a bit transactional, and we don’t really have a fabulous relationship.
  • They are obviously doing a fair bit of their business elsewhere, because they aren’t doing it with us….
  • All of these things might be true, BUT, none of these arguments take into account a reasonably important angle:

    Did we check to see if the problem is us?

    The clients don’t appear to be potential growth clients….the key word is “appear”. Do we really know if they are or aren’t?

    The clients are transactional: could it be because that is the only way we have ever dealt with them? Just tried to sell them something?

    Perhaps they are doing business elsewhere that we could have done….the key word is “perhaps” isn’t it? We don’t really know…

    Finally: they are unprofitable. Well that is definitely the advisers fault. Customers don’t make themselves unprofitable, we do. The demarkation line on that one is straightforward: customers bring in an amount of revenue; we decide how much expenditure we will incur servicing them. So to make them profitable all we have to do is service them differently.

    Been there, done that. Some years ago now my practice went through a very lengthy exercise with a large client base to try and determine where we were making money, and where we were being poor business people. The results were astounding…although I guess they shouldn’t have been. We had made the classic mistake of delivering essentially the same service level to all clients, albeit with a bit of extra personal attention and TLC to our A clients. But pretty much every client got the same engagement process, and we went through the same review process – or tried to – and everyone got invited to everything.

    The result of all the segmentation and analysis for the C clients was something like they cost us $121 each per year to service, and on average presented $70 in revenue.

    Whose fault was that? It sure wasn’t the client’s fault. It was ours. We got our delivery wrong for those people. They are valuable if we get our costs right.

    Cut Your Losses NOW!

    This is the point where I received a lot of advice to sell the C clients to stop bleeding cash. At that point the capitalised value of those renewals was relatively insignificant in the great scheme of things as we could have sold the rights to renewals for about 2.5 x annual recurring income – which was not a lot.

    More importantly though, I knew how hard it was getting new customers. Expensive. Time consuming. Some will turn out to be the new “C’s” anyway.

    A bit more analysing and thinking about the options resulted in a plan that ultimately ended in “sell whoever doesn’t engage, but give them a chance to first”. The strategy became:

    1. Start again/Give Them A Chance.

    Treat each of them as if they were a new customer, and make a concerted effort to engage in full fact finding and relationship building with each of them.

    2. Transactional? Give them the deal they really want.

    If clients didn’t want to engage with us, or in the full advice process, then it makes sense to give them the deal they want – which was invariably price-driven. So we did a deal with a supplier who guaranteed to give the best price to the clients, and then made them an offer. Essentially it was “this will save you 20% on your premiums forever, but if there is no advice or ongoing service as part of the package – you just get the cover you need at a price that can’t be beaten. You’re then on your own. Want it?“

    3. Keep the longshots, but make them profitable.

    Some hadn’t wanted to engage now, but didn’t want to entirely opt out of advice, and had the potential because of their positions or careers to perhaps become more valuable clients one day. So we changed the service levels to one of “stay on the radar screen cost effectively, but don’t waste personnel time on them”. Average servicing cost then dropped to about $25 per year per client.

    4. Get rid of the deadwood.

    Anyone left presented no real future, so with these it was time to cut our losses and sell.

    The results from following this plan were pretty spectacular actually.

    We started with something like 2,000 clients identified as being low value, and managed to re-engage with over 100 of them and turn them into proper “advice clients”. That was, in real terms, 100 new clients for the firm. Not a great percentage perhaps, but we’ll take a hundred new clients anytime.

    The transactional were really astounding. Over the course of about 6 months or so we literally sold an alternative price-driven solution to about 600 clients. We had just capitalised their “exit value” at 6 times more than we would have got by selling them, and had completely re-positioned our relationship with them. No ongoing service or advice obligations, and they had left happy customers.

    A few hundred more were kept on, but were now being seen more as “prospects” than clients and they were paying their own way while we waited patiently.

    We ended up selling about a thousand clients, but had satisfied ourselves that they really were people who presented no significant value to our business, and who in turn didn’t particularly value us. Along the way though we got busy doing good work with more people who were valuing us, the firm made some good money as we went through the exercise, and the long term bottom line got a lot healthier. Customers were happier…and so were our staff.