How to Manage Small or Transactional Clients
Small and/or transactional clients can pose many problems. In fact, dealing with these types of clients is a vexing issue for many companies. Here’s why:
- Are costly to service—they can use up senior time (partners, senior executives) with little return
- Often have limited budgets, and any one small client can only make a modest contribution to total revenue
- Tend to refer you to other small clients
- May strain to pay your fees—they may be used to using little-known, local suppliers who are much less expensive than you are
- Are an unreliable source of revenue—it’s hard to plan and grow a business around them
- Can have high selling costs, because you are starting from scratch for each sale (this is not always true, but it can be)
- May think of you more as a vendor than a trusted advisor. If so, they will keep you at arms-length, and not share their real agenda and plans
Border collie watching sheep (small clients?)
YET…both types of clients often contribute significantly to revenue and therefore to fixed overheads. So it’s not as simple as just getting rid of them. If you did that all at once you might literally go bankrupt unless you simultaneously reduced your cost base dramatically.
Of course, on the upside, a very successful small client may grow and become a large, steady client—your small client could…possibly be the next FaceBook or Amazon (although honestly, the odds are pretty low, and you probably know now whether there’s potential or not…). A small client could be a training ground for more junior staff—for example, investment banks often have their less-experienced staff deal with mid-cap companies.
So what do you do when your growth and profitability are being diminished by a lot of small clients, or clients who are transactional and treat you like a vendor?
Here are six possible strategies—and the right one may combine several of these:
- Renegotiate the relationship. Renegotiate the relationship itself—explain how you would like to work with the client differently going forward—so as to better meet their needs and have a greater impact on their business (for example, for a transactional client, propose a more collaborative relationship and a closer working arrangement where you address important, ongoing issues not just one-off problems that may be symptoms not root causes ( “go big or go home”).
- Renegotiate your fee structure. Raise/restructure your fees and pricing so that the relationship is acceptably profitable for you.
- Delegate. Delegate the relationship to more junior but competent staff.
- Change your delivery model. Restructure your service delivery model and lower your delivery costs so you can more efficiently and profitably service these types of clients.
- Create a different service offering for them. This is similar to number (4), but goes further. Under this scenario you would develop a service or product that is specially designed for smaller clients, for example, rather than trying to provide the same solutions you are selling to larger corporations.
- Terminate. Terminate the relationship, possibly referring the client to a new, more suitable provider.
It goes without saying that you need to clearly define your strategy and your target client market—otherwise, you will end up pursuing anything that moves. Just as good advisors are able to say “No” to their clients, you have to be able to say “No” to yourself—to clients and investments that are “off strategy” for your business. If you don’t focus, you may dilute yourself into mediocrity.
Remember: A lion cannot live on a diet of mouse alone–it can’t catch enough of them! Too many small or transactional clients will defocus you from building the flagship relationships that sustain your practice and your firm.