A Case Study In Effective Client Classification

A very beneficial activity in an Accounting Business is to properly Classify Clients and then take action based on those classifications. A well-designed classification exercise usually reveals interesting (and sometimes surprising) information.

This is best illustrated by an example, in this case, a sizable firm in South Carolina. Here's a summary:

The Data

Using a Panalitix Client Classification tool, we found that:

• Total annual revenues: $7.1 million
• Total clients: 1,150
• Average revenue per client: $6174
• 161 (or 14%) "high-end" Clients generating 54% of revenue
• 426 (or 37%) of Clients generating 80% of revenue
• 282 (or 25%) of "low-end" clients generating 2.2% of revenue

The Initial Analysis

The partners agreed that too much time is being spent managing "low-end" clients for little reward. This was also keeping them from focusing on "high-end" clients where they could add more value. The decision to get rid of many clients (those paying less than $3000 per annum) was gaining momentum.

But we decided to dig deeper into the data.

The Enlightened Analysis

The deep dive yielded more data and resulted in some positive actions. Here's a summary:

Action 1: Retain 85 low-end clients which are profitable even though revenue is relatively low.

Many of these clients are recipients of "nominee director services" which realizes a good profit. Why lose these Clients and the profit just because the revenue is small?

Action 2: Retain 70 low-end Clients where low profitability is the result of poor workflow processes and poor Client management.

Bad habits had crept in with certain team members especially in allowing Clients to dictate terms. However, a "quick fix" in these areas will bring these clients up to respectable profitability levels and might produce new opportunities.

Action 3: Raise fees on around 115 clients who have "escaped" increases in recent years due to inconsistent processes.

Some of these clients will leave but those that remain will hit profitability targets.

Action 4: Retain clients which have growth potential... and then explore new opportunities.

The firm serves some subsidiaries of large organizations which are likely to require additional services. There has been no concerted effort to pursue these opportunities to date.

Action 5: Get rid of around 116 Clients (mostly individuals) which are not Target Clients

Clients should fit the business vision to "Support business Clients to achieve the owner's goals"

Action 6: Each partner will identify 3 high-end 'growth Clients' and make a plan to pursue the opportunities.

Client Classification is not just about removing clients. It should also trigger actions to chase opportunities with the largest, most profitable clients.

Action 7: Each partner should identify high-end 'at risk' Clients, then investigate and remediate as a matter of urgency.

Client Classification may reveal that high-end clients are dissatisfied and considering alternative providers, in which case immediate action should be taken.

Action 8: Update marketing materials to reinforce the firm's unique skill sets

Client Classification revealed an important client segment, that is, foreign capitalized companies launching locally. Since the business has a unique competitive advantage here, they should communicate this to generate more leads.

Action 9: Set goals and plans to attract Clients which pay a minimum of $20,000 per annum.

This will involve a different approach to marketing, sales, staffing and offering a year round service. The idea is to break the current habits and develop a new approach so the Client base continually improves.

The partners are rigorously implementing these actions and are beginning to see the rewards.

Is it time to consider classifying your Clients? What would be revealed? And what actions might you take?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.