BrazilNew versus existing clients in the professional services industry
The professional services industry of Western Europe is thriving at present – however, with competition in the sector continuing to heat, no organisation can rest on its laurels. Professional services firms would be wise to shift some of the time and resources they spend on new client acquisitions to client retention, according to Remco Kroes, a solution marketer at IT services company Exact.
According to trends reports, across Western Europe, accountancy firms, engineering firms, consulting firms and IT service providers are on average seeing their turnover grow between 5% and 10%. The number of customers is increasing, net profit margins are higher than a number of years ago, and the most important of financial indicators are in good health for the majority of industry players.
The positive economic background means that professional services firms are focusing largely on seizing new market opportunities. In particular, attracting new customers is high on the agenda for most firms’ directors. That is just as well, according to Remco Kroes, Product Marketing Manager at Exact, who emphasised that the objective of finding new customers must be carefully aligned with the overall strategy of the organisation and the status of the existing customer portfolio.
Kroes; “The focus on client acquisition is important, because 69% of professional services firms consider attracting new customers the biggest overall challenge in the market, according to Exact’s recent SME Barometer.”
Investing in client acquisition
At the same time though, focusing on new clients comes with a range of challenges. The battle for new clients is fierce, while attracting leads and engagements requires a lot of investment, according to Kroes, who explained that this comes down to a few elements. First, acquisition costs - including spending on marketing and sales activities - can shoot through the roof.
Explaining, Kroes said, “Consulting firms and agencies for example spend considerable time marketing their offerings, and then when they are invited to pitch for work, for preparing proposals and complying with tender requirements. It is therefore not always clear what the bottom-line benefits really are.”
This conclusion also comes back from a recent study by Consultancy.org in collaboration with ProSpex on the maturity of business development processes in the industry. The authors found that just a handful of firms have complete insight into the costs and return on investment on their marketing and sales efforts.
Kroes elaborated; “This includes having insight in non-chargeable hours that need to be taken into account. Because hours that fee earners spend on acquisitions are not 'invoice-able', and hence constitute an ‘indirect cost’.”
“Customer retention in business services can be very lucrative,” Kroes suggested. “The chance of selling with existing customers is between 60% and 70% and in addition, customer retention is 5 to 7 times cheaper than investing in attracting new customers.”
– Remco Kroes, solution marketer at Exact
Another aspect of betting highly on new clients is that newly tapped clients/projects typically come with a financial investment. When professional services firms win work, they typically invest in preparing the engagement, and then work 2-3 months before they receive their first payment for their services.
“If the financial process is optimised, then the invoice will be sent immediately after the first month of work,” Kroes said. “And with a minimum payment term of 30 days, firms end up pre-financing around two months of work. But some customers have payment terms of up to 3 months, in which case pre-financing hangs like a millstone around their neck.”
On top of this comes the fact that the win ratio of winning new clients can vary significantly, further adding volatility to the sales pipeline and therefore also the financials of the business. According to figures from Exact, a provider of IT solutions to the professional services industry, the likelihood that a new customer buys is between 5% and 20%. As a result, if a series of engagements does not succeed, then project-driven companies that work with an assignment cycle of between 3-6 months will get into trouble.
All in all, Kroes advises professionals service firms to align their approach for client acquisition with their overall strategic and financial plans. More importantly, he advises companies to balance the relationship between customer acquisition and the portfolio of existing customers.
The client journey
So how can leaders then better serve their existing customers? According to Kroes, first and foremost firms should ensure more ‘customer moments’, such as a newsletter, meetings or digital communication, in order to get more knowledge from your customer so that businesses can adjust services accordingly. Second, create value added around the service, and ensure that it meets the needs of the customer, ensuring marketing outings are focused on the customer, and that they are “received at the right time in the right form.” Finally, firms should build engagement, for example, establishing a client community, or rewarding existing customers with extra services.
Above all though, the Exact stressed that leaders in the professional services sector have to know which side their bread is buttered on. Ultimately, 80% of the future profit in the industry should come from 20% of its existing customers. Neglecting existing customers can be a death sentence then, and this makes it very valuable for leaders to have insight into the contribution and profitability of customers. According to a data analysis by Exact, top clients (1% of all customer accounts) generate 50% of sales, large customers (4%) account for 30% of sales and medium-sized customers (15%) are responsible for 20% of sales.
“It really pays to find out who these customers are and to place focus on them,” Kroes concluded. “The role of technology plays an important role in this. Smart IT solutions facilitate the creation of insight, and help leaders with making the right decisions.”
