The time has come for businesses to cut their customers
Ask a room full of accountancy executives if they’re feeling overwhelmed this fall, and you’ll find a room full of heads nodding in agreement. One of the reasons is that companies today see huge opportunities in the market, but don’t have the time or the capacity to take advantage of them.
Business leaders can use all kinds of capacity building strategies including outsourcing, offshoring, hiring non-CPAs for service delivery roles, hiring outside of your geographic area, implementation of efficiency enhancement technologies, etc. These strategies work, but planning and implementing them takes time and resources, and everyone today is strapped for both.
There is a strategy companies can implement immediately to dramatically improve capacity ahead of the next busy season. This idea is one we’ve been talking about for decades, but only the bravest and most committed have ever come to fruition.
The idea? Resize the customer base for your business. This should be the top priority for accounting firms this fall. Here are six reasons.
- Your people are tired of feeling overwhelmed. They worry that the turnover you are experiencing will make the next busy season worse than the last. And we haven’t even hit the peak of November’s “shutdown month” yet. If you’re like many businesses, you don’t have the right workforce for your current client load, and you risk exhausting your best and brightest if you don’t make an immediate change.
- The 80/20 rule says you have customers who can be cut. In most of the businesses we analyze, 80% of a company’s revenue is generated by 20% of their customers, and the other 80% of customers represent 20% of the revenue. This large group of small clients is the “wagging tail”, and their management requires a huge infrastructure. The cost of installing them into your systems, providing services, and then billing and collecting them can exceed the revenue they generate on an individual basis. As your business grows, so does your ideal target customer base and the size of your engagement. Serving unmatched customers is no use to them or to you.
- Your employees have customers they don’t want to work with. These clients may be mean, disorganized, feel risky, have an unattractive environment to visit, dislike your services, or pay slowly or not at all. These are the D-level customers you know you shouldn’t be serving. These D clients are definitely working against you as you fight to keep your employees in your business and in this profession.
- We have entered a market of service sellers. Companies don’t have the capacity to take on more work in certain areas. When demand is up and supply is down, costs increase. Now is a great time to reduce your customer base to get rid of those who are unwilling to pay your fees or who meet some of the other criteria outlined above.
- You can achieve greater growth with a smaller customer list. As you increase capacity, you will have time to implement other capacity expansion ideas. This will give you more space to grow your business in areas that interest you and your team. You can extend services to existing clients, provide them with more consulting services and make a bigger difference. Or you can aim for more targeted “ideal” clients who match your profile for Client A and who will bring more joy to you and your team members.
- You can bring real hope to your talent. When you remove customers and increase capacity, your employees will see that you are committed to changing your underlying business model to improve the quality of life for everyone.
So, if you are planning to take a bold stand and courageously lead your business through a customer reduction initiative to free up capacity and improve lives, consider these ideas:
- Ask your partners to identify 10% of their clients under management for a reduction. They can choose to reduce their customer load based on profitability of engagement, likability, suitability for the company’s overall product / service range, payment habits, ease of relationship of work or any other criteria of their choice. Make it mandatory that each partner (or client owner) submit a list that corresponds to 10% of its clientele to your management or your executive committee before a certain date – quick – for evaluation.
- Execute this strategy soon after October 15 – or another fall finish line – and before the next duty cycle begins. Customers should be made aware of your plans to transition to a new supplier, so you can help them move before their next engagement period.
- Use a consistent position statement to make communications smoother and more consistent. Some customers will need to be notified “live” by phone or video depending on their relationship with the business, but most may be notified by letter or email. Consider using language like, “As you probably know, the accounting profession has been under immense pressure with continuous legislation and change, increasing client needs and decreasing availability of talent. We have reached a point that requires us to review our service commitments to ensure a quality work life for our team members. Through this analysis, we have determined that we cannot continue to deliver your [insert work type] services in the future. We are very sorry to be at this point. We’re happy to refer you to another vendor if you wish, and we’ll work with you to make a smooth transition to whoever you choose to work with next. You can choose to leave the offer to refer the customer to another provider of any communication in the case of your most difficult customers.
- Remember that a client who is not ideal for your business because of their size, niche, or service needs may be ideal for another. Identify companies that specialize in the type of clients you are going to transfer so that you can actively direct those clients to quality suppliers looking to grow their base.
- Remove financial disincentives. Most partner compensation and deferred compensation systems are linked to the size of clients under management or volume of business. If all partners cut down on all levels, it makes any “haircut” that could be considered universal, which keeps the level of the playing field. But if you fail to involve all partners in this strategy critical of capacity building, make sure those who let go of clients are not negatively affected financially.
- Don’t miss the opportunity to kick clients out of the firm when their primary supplier retires. We see companies moving “average” or even “bad” customers to new customer servers in their business. It is so discouraging for the future leader who takes over these clients and not the good use of their talent. Instead, when considering upcoming retreats, identify at least 10% or more of your retiree’s clientele for referral elsewhere. You can use some of the language suggested above, and include something like “when Partner X retires, we are no longer able to serve you. Instead, we would like to refer you to [outside provider Y]. “
Eliminating customers can have huge benefits for your business this fall. But be warned. You will face resistance to these ideas. Some in your business will fear that this measure will allow competitors to sell against you, claiming that you are too busy for a new job. For most businesses, that’s a true statement right now anyway. Freeing up capacity will allow you to engage with new customers and new work with confidence. Some would say they can’t let customers go until the next billing and collection cycle. This should be taken into account, but if we wait too long, those same resistance fighters will say they can’t transfer customers because it’s too close to the new duty cycle.
By all means, listen and respond to objections. But remember, you are in a tough spot now. A strategy to reduce the number of customers is not easy, but it is the fastest way to free up space to implement other critical business model changes. And it’s the most visible change you can make to demonstrate your commitment to improving the work lives of your increasingly tired team members. Hope you start working on it today.
– Jennifer wilson is a partner and co-founder of ConvergenceCoaching LLC, a leadership and management consulting and coaching company that helps leaders succeed. To comment on this article or suggest an idea for another article, contact Jeff Drew, a JofA editor-in-chief at Jeff.Drew@aicpa-cima.com.