The ROI of Relationships
by Steve Whitehorn
The financial success of any firm is built upon its personal relationships. However, many firms often fail to realize this basic truth. The endless pursuit of new clients to expand market share is an outmoded, counterproductive strategy. You can spend an overwhelming proportion of your marketing budget trying to win new clients, but in the process you miss out on the bottom-line benefits that come from nurturing existing connections.
According to Donna Fenn, contributing editor for Inc. Magazine, acquiring new clients can be costly, while existing relationships are more reliable and profitable. In fact, repeat clients spend close to 70% more than new ones. By investing in existing clients, firms earn trust and fortify their alliances. For example, if you need to renegotiate a fee during the design phase of a project, a long-term contact is more likely to approve a higher fee than a first-time client.
Furthermore, adding a new client to make up for those that leave you is actually decreasing your profits and increasing your marketing costs. If you gain a new client, but lose an existing one because you were unable to give them the attention they need, you end up with the same number of clients as before. Except now, your profit margins will suffer because it costs more to get new customers than to nurture the ones you already have.
Sometimes, however, you need to shake off the dead weight. Just as you can benefit greatly from nurturing your best connections, you should let go of those that aren’t working in your favor. Parting ways with a client may seem counterintuitive. However, difficult clients waste resources and diminish profits. Assess your client list and separate them into three categories, identifying your favorite clients, those you like or need to get to know better, and then those that you would rather not have to deal with. Hopefully, you don’t have anyone in the third category but, if you do, take stock of why you don’t like dealing with this client. Do they always pay late? Do they consistently expect you to double your workload without adjusting your fee? Are they constantly eroding your time with incessant e-mails and phone calls for things that can be addressed at your regular meetings? If your answer is yes to any of these questions, it may be time to part ways.
As an architect or other design professional, you can’t afford to spend time on negative client relationships, especially since your business is subject to unique pressures that often result in diminished budgets and strained cash flow. Think of it this way: the Pareto Principle, also known as the “80/20 Rule,” cited here by Forbes contributor Dave Lavinsky, can demonstrate that 80% of a firm’s profits are generated by 20% of its clients. By keeping strong client relationships and discarding unprofitable alliances, firms free up time and energy to devote to their top 20% clients, resulting in greater financial stability overall.
By recognizing that client relationships directly influence your profitability and by nurturing these relationships as your best assets, you can create a solid foundation on which your business can grow.
Steve Whitehorn is the author of the upcoming book, Ensuring Your Firm’s Legacy, and Managing Principal of Whitehorn Financial Group, Inc. The firm is the creator of The A/E Empowerment Program®, a three-step process that helps firms create a more significant legacy and empowers them to achieve greater impact on their projects, relationships, and communities.