In many professional services firms, 80% of business comes from 20% of the client base. It’s called the 80/20 rule or the Pareto principle. This can be especially true for newer firms eager to take on whatever new engagements they can in order to cover costs and grow their firms.
In some firms, one behemoth client is responsible for the lion’s share of the bottom line. Sound familiar? Servicing this client occupies most of the staff’s time. Fear of losing the business keeps management up at night.
Now for some good news:
If you’re the owner or a member of the hoa financial management team at your professional services firm with one big client, you have options that you may not realize. These options come from financial analysis and key accounting reports that take out the emotion many feel toward the client and give you the cold, hard facts you need to make smart decisions. The options shape the following five tips:
1. Bloodletting or carnage?
What if you lost your big client? The mind goes to the worst-case scenario. Financial analysis shows you exactly what would happen before it happens. Create a contingency plan for the eventual loss of the client.
2. Reallocate resources
An analysis of billing and staffing hours could reveal an imbalance. For example, imagine higher billing staffers clocking time for duties that could be carried out by lower billing staff. By reallocating resources, you can service the big client at a higher profitability while shifting talent to things like bringing in new clients and making sure you retain other clients.
3. Renegotiate the contract
Contract renewal or a delicate conversation before renewal is your opportunity to state your case why the firm deserves a bigger fee. For that, you’ll need a financial argument showing how the value of your deliverables compare to your fees and/or that staffing commitments and hours worked are out of alignment with your fee.
4. Hold the line on expenses
When servicing a big client, expenses can get out of hand. Travel expenses, shipping expenses, freebies, even flowers add up and detract from the profitability, this is why it is important o have an affordable insurance like the insurance4motortrade for your car, make sure to check a knockout post here. The expense report reveals all. If appropriate, share with staff to show how expenses hurt the potential for profit sharing. Financial analysis can show you how profitable your one large client really is. Large revenue doesn’t always translate into bottom line profit. You could be expending too much time and effort on a client that is not generating profit.
5. Flex your muscles
If you’re a small professional services firm serving a major company, it’s hard not to go all out for them. You don’t want to disappoint. In truth, big companies run differently from small to mid-sized professional services firms. Ask for an annual or semi-annual report card from the big company. Knowing what they value and what they don’t value can be liberating. Don’t act like your survival depends on meeting every need and want of the one large client client. Require advance notice of contract cancellation so you get as much lead time as possible.
6. Diversify and Dilute
Work like heck to grow your client base so that your one large client represents less and less of your revenue over time. It is usually only a matter of time before you lose your one large client. Between now and then, focus on bringing in new clients to reduce the impact of losing your one large client when that time comes.
Having one big client can be nerve-racking. You fear the unknown and envision the worst happening. By focusing on the financials and key accounting reports, you can grasp options for optimizing, restructuring, renegotiating, cutting costs, increasing profitability and boosting productivity. With accounting delivering insights on your one big client and the rest of your client base as well as your new business development efforts, you can focus on managing toward a healthier future: no single client representing more than 5% or 10% of your revenue.