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For the last 20 years or so, I’ve been privileged to work with successful mid-size service firms, those with roughly 20-100 staff. While each company has somewhat different goals, there are common themes we’ve encountered across nearly all firms, even those in different industries.
They want to increase revenues and profits, attract great new employees, expand geographically and move up market to work with higher-end clientele who can afford higher fees. It is this goal – moving up-market – that tends to be a real challenge. How do you position for higher-end clients when you need to keep serving the clients you have today to ensure revenue flows through the door?
The best solution I’ve seen to address this problem is client minimums. A client minimum is the least amount of money you’ll accept from a new client – no matter what services they acquire from you. For service firms that offer annually repeatable services, the minimums are established for a year. For service firms that offer project-based services, the minimums are established on a project basis.
I believe there are five key reasons mid-size service firms should adopt client minimums:
- It protects your value and profits.
- It allows you to focus on an ideal client profile.
- It allows you to get the money question off the table in the first meeting.
- It empowers you to offer a broader array of services.
- It sends the right message to your staff.
Two key concepts
First, taking on clients who won’t accept your minimums actually costs you. It stunts your growth instead of accelerating it. It makes you more scattered, not more focused. It confuses your staff about whether or not you’re serious about moving up-market.
This is the exact opposite of how most service-firm leaders tend to think about growth. They seem to think that if you want to grow, you have to say yes to nearly anyone who expresses interest in your services. I don’t believe that at all.
Establishing and sticking to a client minimum is a game-changer for every service firm where we’ve implemented these. This process works. But to be clear, this means you will have to say no to certain types of clients you might be saying yes to today. That can be very uncomfortable at first.
Second, this strategy is about new clients, not necessarily existing clients. You might need to keep serving clients today who do not accept your minimum fee to ensure you have the cash-flows you need to run your business profitably. Over time, as you bring in great new clients, you can have a conversation with legacy clients to see if they are ready to step up.
It protects your value and profits
Client minimums increase your bottom line. Period. I was consulting with an organization recently who claimed to have client minimums. But everyone seemed to have a different idea about that minimum.
The CEO thought it was 100k. A VP said it was 50k. But, in actuality, they had recently taken on a new client for only 10k. They expected that after an initial project, they would expand in the account. But this did not happen. Why? Because they did make their client minimum clear.
But the other great reason to establish client minimums is because of what it says about you. This is saying – in so many words – that you know your services are valuable and you won’t give them away at a discounted rate. When you value your services, prospective clients tend to value them too.
It allows you to focus on an ideal client profile
An ideal client profile is a clear statement about who you are ideally suited to serve and how you impact them. This should include a full articulation of the goals, opportunities and challenges that your firm is uniquely qualified to address for your clients.
How does an ideal client profile help you establish and stick to client minimums? If you have their goals, opportunities and challenges clearly identified, you can then ask yourself one important question. What is it worth to our clients to achieve those goals? I’ll bet it’s worth far more than you’re charging today.
Most service firm leaders establish pricing either based on their best-guess of what other service firms would charge or based on their costs. Both of these strategies are flawed because they don’t focus on client value. An ideal client profile fixes this.
It allows you to get the money question off the table in the first meeting
One of the first questions a prospective client will ask, once they want to work with a new service provider, is how much do you charge? What they’re really asking is – how much is this going to cost me in total? A client minimum allows you to answer that question quickly and succinctly. Then you’ll know whether or not they’re serious.
It empowers you to offer a broader array of services
Have you ever discovered that a client is buying services that you offer, but from a competitor? This usually happens because you never quite get around to describing all of the services you offer. A client comes to you for an initial project and that’s all they think you can do. Client minimums fix this by allowing you to say – here is the minimum we charge and here are the complete range of services we offer to ensure you get value for the dollar.
It sends the right message to your staff
Client minimums tend to weed out bad clients who hurt morale. People who buy solely on price, rather than on value, tend to hate client minimums because they can’t get away with over-negotiating. I’ve noticed that those types of clients can be very difficult to work with.
I think it’s important not to underestimate this value, especially in today’s job market. Client minimums tell your staff that you value them. I’ve seen this improve morale and employee retention. This relatively simple policy delivers many benefits for very little effort.
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