Client churn hurts your business more than adding new clients can help
Learn to build momentum by knowing what else your existing clients need to succeed
Scenario: Most professional services firms are transactional. When one project-based engagement ends, the goal is to have another one ready to start. Feast or famine.
Insight: Churn hurts your business more than new clients help it. When you’re constantly replacing your revenue, it’s nearly impossible to grow. This is a major reason why only 2% of professional firms ever make it to 7 figures.
Action: Listen to your clients and create services that minimize on-going threats to their businesses. You make money when your client saves theirs. Not only do clients stick around longer, but you’re also building momentum. Say hello to less churn and fast-growing, non-lumpy revenue.
🤔 What do your clients always need?
At first, every client you landed came walking in with urgent needs or an upcoming project. Your business has been growing due to great work and expertise, but clients walk away once you fix their concerns. This leaves you needing more clients and you hope the prior client will circle back in the future when they need help again.
Your business may not operate this way exactly, but I’m sure it’s not far from reality if we’re being honest here. That’s how my last firm operated for the first couple of years.
Most professional services firms survive by moving from one engagement to the next, trying to line up each one to minimize gaps. They’re transactional.
This means client churn is high within most firms. It also means most firms accept this behavior as “just the way it is” and find growing revenue difficult (if not downright impossible).
Talking to your clients about their fears will shed light on opportunities to help eliminate or minimize the pain they are trying to avoid.
This is how you fight churn. You provide ongoing value by helping your clients avoid situations that hurt their businesses. And, if you really understand the need and the financial impact to your client of “doing nothing”, you have everything you need to design a service they will love.
The more clients you sell this service to, the more stable your revenue becomes, which allows you to make more informed long-term decisions about your business. This is how you build momentum.
Continuing to help your client is almost always a more effective way to grow revenue than constantly replacing them with a new one.
An added benefit of building a managed service is the focus on the outcome, not the effort. This means you have every incentive to reduce the effort needed while improving (or, at least, maintaining) your quality. A win-win scenario that helps your business and your client.
😖 What does this all mean?!
If you can deliver continuous value, professional services can scale too.
The default transactional business model is the major reason why professional firms typically fail to scale. Selling inputs (hours) and replacing one client with another when a project ends, is a recipe for stagnation.
I’ve spent much of my career helping big companies transform their supply chains using technology and operational improvement strategies. Think managing orders, inventory, and shipments in warehouses big enough to hold 20+ football fields.
In my last firm, my clients were rightfully anxious about what happened when their warehouse operations would go down. That meant the loss of revenue and the failure to meet contractual requirements. Big problems.
Million-dollar per hour problems. Mission-critical problems.
While they purchased support contracts from system vendors, none knew how the clients used the solutions within their businesses. Usage was highly tailored to use cases that only my teams were uniquely qualified to know.
So, I offered to manage their solutions and step in to minimize downtime.
Clients loved the service. They paid to avoid pain, which also meant they could earn more revenue due to less downtime. I loved it because my team was paid based on outcomes instead of efforts. We were paid to avoid “work” by discovering more ways to prevent downtime and recover quickly when downtime did happen.
Managed service is the poster child for incentive alignment.
As client issues decreased, my profit margins increased. I was also able to hire less experienced analysts for the managed services teams.
Within months, I had built a 7-figure service that boasted better margins than our project-based engagements, with far less effort.
I could see a clear path towards enough recurring revenue to cover our operating expenses. That was liberating. It also meant that all project-based work would largely be pure profit. How many professional services firms would dare to dream of that?
Your homework for today is to think about threats to your clients and what you could offer that helps them avoid that pain. Share it in the comments so others can benefit and we can help you build an execution plan.
🙋 Got questions?
As always, share your thoughts in the comments. Questions and unique perspectives help build our community, which benefits everyone over time.
Want me to answer specific questions, share them here and I’ll share what I know with you. If I think it will help others, I may even turn it into a future issue (keeping you anonymous unless you don’t mind a bit of limelight).