I was having a cup of coffee with a former co-worker when she mentioned a problem very common in the professional services world — evaluating whether clients who require most of your energy and resources are the same ones who provide most of the positive impact on your business. This is certainly not a new issue and not industry specific — whether you sell services or products, it’s important to check your current assumptions about the value of specific clients/customers. One way to evaluate would be to segment using straight numbers — revenue and expense data. Maybe drilling down with an 80/20 perspective. And…this might mean another pie chart. Meh. While it may be informative, this process may not be meaningful to cross-functional teams. And, of course, value can mean more than a sterile profitability analysis.
This reminded me of a handy matrix I had seen recently (LBS) on customer segmentation that is a quick and easy way to start the discussion. You will still need to understand profitability by segment (for a complete picture) after everyone has had a chance to place clients on the grid, but this first cut gets at the right questions. And, best of all, we started on a piece of paper in a coffee shop!
Stars: Your best clients. They like you (always good for a professional reference), you love to do business with them. Remember that current customers are your future customers so work hard to understand this group. And, understand the economics.
Time Wasters: You know these clients — they call you for free work, always promising future contracts and/or expanded scope that never materializes. You really like to work with them, but it just doesn’t pencil and it frustrates the team.
Desirable: You’d love to work with them, but your offerings don’t meet their needs. See if you can find out what they value and match that with your selling proposition. You might be able to make them your Stars someday.
Need to be Fired: These are the clients that keep coming back to you, but you cannot figure out why. Your team struggles to keep them happy throughout the projects and the follow-up phases. As a COO, I have gotten the phone calls from this segment often, sending us all scrambling to please them. And you really want to keep them happy, you do, because they are clients, but sometimes you find it’s an impossible task. It’s time to move on for both sides.
So, get everyone on the same page as to which clients/customers go where and then move to the revenue and expense filter. You’ll then get a better idea of where your assumptions are right and where you may need to shift strategy.
And draw more matrices in coffee shops — they are a great way to get a fast visual to direct data gathering or strategic direction. I’m working on Venn diagrams next!