Case study- maximizing client value

Her top 20 clients pay her well – an average of $12,000 each per year. But she also estimated that her staff devotes approximately nine hours per year to each at an average wage of $50 per hour. Direct costs for material, client appreciation, etc., come to approximately $450 per year. Add all that up and she spends in excess of $5,000 per year on each of her top 20 clients for $12,000 of revenue. That's an impressive 140 percent margin.

However, let's look at her 45 A clients. They generate $150,000 of total revenue, or $3,300 each. She isn't quite as lavish with them as with her top 20 clients. Add up all the costs, and the average expenditure per A client is $3,200, compared to $3,300 per year of revenue. They're great people to have as clients, but she is simply spending too much for the revenue they generate.

The story is very similar for her B clients. They generate, on average, $1,300 per year and she is spending about $1,100 a year on them.

It is essential to appreciate the value of each client and then allocate her resources commensurate with that value. She needs to create a service level agreement and marketing activity schedule appropriate for each client segment. Calculate the costs and compare them to revenue by client segment. Look for ways to cross-sell, move up-market, increase share-of-wallet, increase introductions and so on.

Janet and I worked together to redefine her client experience to ensure it yielded a fair margin at all client levels. We designed a marketing, sales and service matrix to increase the value of each relationship. One year from now, we will conduct the benchmarking survey again to measure progress. My guess is that Janet will rank very high in all categories.