You Are Your Customer List
Submitted by: Paul O’Byrne, O’Byrne and Kennedy LLP
In 1998 we were much like any other small firm of accountants. A ten-person firm in Hertfordshire, eight accountants dealing with the usual mix of work. Accounts and audit of small owner-managed businesses with tax computations and returns and lots and lots of personal tax returns. We had nearly 500 clients with an average fee of about £1,000.
That average hit a wide spread. As with most client portfolios, there were some stars: clients whose work involved regular contact, sometimes weekly contact and attendance to help with management, accounting or particular projects. There was also a large number of very small clients. When the Inland Revenue Self Assessment came in, we believed the market had set the price of a personal tax return at between £100 and £150 and we offered that fixed price accordingly. So for many of our clients, hundreds of them, the fee was £125.
We had come back from The Accountants Boot Camp with their injunctions to stratify clients ringing in our ears. So loud was it ringing, we took a good six months before doing it! We did it first off by gut feel; the two partners went down our respective client lists and gave the client a rating from A (the best) through to D. We discovered we had just 20 A clients, and over 100 D clients! Somehow though, it didn’t seem right: we are professionals, and should we even be doing this? And how could we justify our rating unless it was more objective than gut feel? Not that anyone asked to justify it, but we were brought up in an evidence-based profession. So we devised a spreadsheet (of course!) and initially identified five categories that we thought mattered and ended up with a table like this:
Readers may ask how we decided to attribute scores, and where to set the thresholds between A, B etc. And how could we score profitability accurately? Well, we didn’t know either, so we resolved to just get on and do it as best we could, using proxies where we could, and see what the results told us.
There were many surprises in the results, and we explored where the scoring system gave a different score from the gut feel rating. This led to some adjustments to boundaries and re-ratings. But mostly it led to some valuable insights. The column for “Partner input” was an afterthought, as with most bottles the bottle neck is at the top, and we recognized that how demanding a client is of partner time was a feature of how good the client was for the firm. The scoring system showed us that we had just 1 A client and nearly 200 D’s. Not an impressive spread of 500 clients!
So we decided to do something about it and we were determined to sack the lowest of the low D’s. Our determination was immediately tested when we were confronted with the fact that many of the lowest were clients for whom the partners had acted for many years and often had strong personal relationships with the clients and their families—indeed, often were family!
What did we do? Obviously as intelligent, committed professionals we wimped out and invented reasons why we should really keep many of the D’s and diverted our attention to sacking the ones we didn’t like!
Even this wasn’t easy. There seems to be a belief in an unwritten law that whereas clients can sack their accountant as they choose (fair enough) accountants can’t ever, ever sack their clients. There is no such law, but nonetheless we found difficulty with actually doing it. There was nothing inherently wrong with these clients; many of them were perfectly good, reasonably well-behaved clients that other firms would be pleased to have. But our new determination to concentrate our efforts on higher value clients meant we had to free up our precious fixed capacity. So we did two things. First, we identified other firms in the area we would be prepared to recommend, so if the clients wanted a recommendation they had some clue who to transfer to. Second, we worked up a system to break the news and carry through the transition in a professional and reasonable way. We wanted to do it slowly—after all, we wanted to be able to eat!
We drafted a letter to send to clients in effect saying—as one might well have done to a former girl/boyfriend—“It’s not you, it’s me.” We explained that we had chosen to concentrate our efforts in different areas and were not best placed to serve them any longer (whilst giving an opportunity for them to say they wanted more from us). However, we continued, there are many firms that were set up to carry out their type of work and they were free to choose form any of them, and we would be happy to recommend another firm if they would like.
Once we got started, the first 10 per cent of clients went quite quickly. Team morale jumped, the pressure on our filing and storage facilities eased, and the chore of invoicing and collections seemed a little less onerous. Partners’ morale soared. We had considered a radical idea—sacking clients—made a choice, faced the difficulties, and implemented it. Not a common feeling in our professional lives! We made the decision initially as much for quality of life as profits. But profits didn’t suffer even while we were putting a lot of effort into smoothing the transition of clients out of the firm. And we had time to seek out and welcome in new clients—of the type we wanted.
So we resolved to do more. And more. As we worked up our stratification list, we realized some of the clients we were choosing to dispose of were actually quite good clients. Ones that in the past we would have happily paid to acquire. So we approached other firms (many of whom thought we were mad getting rid of clients) saying: “We’ve got some good ones, if they want to transfer to you and we make it as easy as could be, what would that be worth to you?” It was worth the going rate for blocks of fees! So we revised our message to the next tranche of clients, telling them that we could recommend other firms, but one in particular we had come to know and we had a close working relationship with. If they transferred to this firm, we would be available to them for any issues they may care to take up with us, have access to our workings, etc., and in consideration of this, the new firm would make some compensation to us.
We got paid for not doing work for clients we didn’t want! This cash bonus sped up the re-engineering process in our firm and allowed us to market more to the type of clients we wanted. Our customer list (as we now call it) is under 100 and has an average fee of £6,000.
From that initial stratification of our customer list in 1998, we have taken this further than we ever envisaged and certainly further than you may be thinking of now. Two years after starting this process, we met Ron Baker and he explained, with great passion and logic, the theories of why this was all right and what would happen. Many of the assertions Ron Baker makes in the ACCA “You Are Your Customer List” booklet (pdf version here) we have found to be true. I exhort you to test this for yourself (and by all means for guidance and support.
You owe it to yourself to take a hard look at your customer list and ask yourself if you would not be better off without some of them? Have you added capacity that is soaked up servicing low-paying (slow-paying?) clients who will never grow into clients of they type you truly want? Have you left room in first class, for when those urgent, price-insensitive, once-in-a-while jobs come along? Have you ever tried to sack a client—it’s not so hard as you fear?
If you are an intelligent, trained, professional person with integrity and conscientiousness capable of delivering great value, is that reflected in your customer list?