Professional services firms work hard at landing new clients and maintaining good relationships with existing ones; in part because client attrition is a reality of business.
For some organizations, concern about the internal ramifications of client churn causes them to work hard at ignoring attrition. They know it happens but they try not to dwell on it too much. So they don’t track it, they don’t analyze it, and they don’t understand what’s normal and what suggests a real issue. And that’s a mistake.
Ignoring client departures can’t help you and ultimately, could hurt you. If your doctor told you your health – or even your life – depended on you lowering your cholesterol, you’d probably monitor your cholesterol intake closely. It’s unlikely you would ignore the situation and just hope that your health didn’t get worse. But we do that with business all of the time because we are afraid of what we might find. In reality, closely monitoring our client base (including attrition rates) gives us more control over potential issues management, and also helps us to understand the typical cycles of our own business.
It’s important to recognize up front that client attrition does not mean a firm is falling apart, or even that the firm is at fault for all client departures. For example, some clients leave as the result of a merger. Larger clients may go through a convergence process (where they review and pare down their overall number of service suppliers). Sometimes clients leave because someone senior in the client company wants to provide patronage to a family member or friend who happens to be in your service area. Service firms can also lose clients through an RFP process by being out-bid or otherwise bested in that process.
Of course, there are always instances where clients leave because they feel a lack of value. For example, clients leave because of personality conflicts with their specific service professional, or because they don’t like the business results their service professional is getting for them or the methods they are using. Sometimes clients leave because they feel a lack of creativity or general client service by the service firm. They can also leave because they perceive the cost to be higher than the value received. Clients also leave due to a lack of communication from the service professional, a miss communication, a mistake by a team member, or a perceived lack of responsiveness by the professional. That’s a big one. (Note to reader: returning all calls by end of each business day is one of the least expensive and most powerful marketing tools at your disposal). . In many of these scenarios, a firm can rescued the client – but first they need to know that there’s a problem to be fixed.
Some clients haven’t gone anywhere, but they may not show up on your active client list because they simply haven’t had any of your service needs of late. Or they do, but they are only giving you a fraction of the work they have and that decision isn’t the result of any negative feelings about the service firm. For example, a law firm could be handling all of a company’s litigation matters but they simply don’t have a large piece of litigation that year.
This is all to say that monitoring client usage of your services over time, and the reasons behind any shifts, will help you to understand when you do and don’t have control over their business with you.
Ideally we’d know what every client is thinking in every minute of the day, and have the time and resources to ensure they all felt like kings and queens. In reality, we don’t have the kind of time or money and we need to logically pick our battles. Luckily, the client base of most professional services firms follow the business rule that 80% of their business comes from the top 20% of their clients. For most organizations, focussing on the top 100 clients is a realistic, effective and meaningful investment.
In reviewing top 100 stats for over two decades, I’ve determined that an attrition rate of 22% – 40% is normal from year to year (depending on the economy). For firms with significant practices that are ore “bet the farm” and thus more occasional (like the firm example above with a large litigation practice), attrition will be on the higher side, so it’s best to analyse attrition rates over a five year period.
Clients can move in and out of the top 100 – chances are you may have 10 or 20 clients that remain in there for years, and often the clients in the top five stay in there for a few years although they may trade spots with each other. Some clients may be in the next 100, and move into the top 100 every few years only. That’s OK. The second 100 helps to pay the rent, too. Many clients come to professionals in an emergency. Once the emergency is dealt with, the client leaves. That’s OK, too. If we can convert them to a full time client, great, but we won’t win every battle. The clients you want to watch out for are the ones who have pretty consistently been in the top 100, but then start dropping down 20 places or more. Highlight those and find out more about why they might be dropping on the list.
To monitor your top 100, I recommend tracking them on a quarterly basis, in descending billing order. Then beside each client, identify what position they had on the list in the previous quarter. In the last quarter of the year, identify their closing position in comparison to their closing position the previous year. Use green to indicate clients new to the top 100. Then create a red list at the end of the document, which contains the names of clients dropped from the top 100 that quarter or year. I recommend the marketing director (or a managing partner) place a call to each of the client relationship managers of those “dropped” clients to find out why. This is not to blame or judge, but to obtain valuable marketing and trend information that will help the firm to best manage that client and others like them in future. Over time, you’ll come to understand normal attrition reasons, and those that might require intercession.
Market analysis such as top 100 attrition rates will help you to understand the ebbs and flows of the firm for better long-term client (and resource) management.
- You’ll be reminded on a quarterly basis who your top 20 clients are (80% of your business) and that will encourage you to take better care of them throughout the year;
- You’ll get a heads-up when good clients either fall off the list, or drop more than 20 positions. This might be cause for a client audit, or at least a phone call from the client relationship lawyer or the managing partner;
- You’ll identify up-and-coming clients, which will enable you to reach out and hug them, so to speak. Ensure they are receiving all pertinent firm newsletters. Make sure they are on all the right invitation lists to firm events and conferences. Take them to a hockey game (I’m Canadian, ehh). Make them feel loved;
- You will start to understand the attrition trends of your firm/practice so that when it suddenly differs, you understand that there’s a problem and you will have an opportunity to address the issue.
Client attrition is a fact of business but by monitoring and analysing it, we can better understand that business. And that means we can start to exert more control over it.