Client classification: Do yours make the (letter) grade?
Firms need to take a hard look at their client lists to make sure they have the right mix.
December 2, 2013
Editor’s note: The following is an edited excerpt from the co-authors’ book, Becoming a Trusted Business Advisor.
Over the years, many firms have grown and developed according to some previous strategy, or none at all. The result is that the firm has taken on some clients that may not belong in the firm’s current business model, strategy, and future. Additionally, some clients have evolved or changed in ways that may make them less desirable as clients today than a few years ago.
For that matter, for one reason or another, some of a firm’s current clients never should have been engaged in the first place. For all of these reasons and more, firms need to take a hard look at their present clients and at their client acceptance and retention policies—and clean house.
A letter system for classification
We use a simple system for classifying clients. Our sample client definitions are as follows:
None of these issues alone automatically classifies someone as a D-client. For example, you might have someone who always pays late (but always does ultimately pay), and you always charge the client a premium fee for work to make up for this business approach, which makes him or her an acceptable client. Or someone may constantly negotiate every fee but, nevertheless, involves you in big projects that are profitable for the firm.
Generally speaking, most firms quickly know who falls into the D category. At the end of the day, you do not want any D-clients. This means that your objective is to either find a way to convert them into C-clients or better, or introduce them to your fiercest competitor. In the latter instance, you have positioned these clients to waste your competitor’s resources instead of yours.
A little more perspective
Once again, it is not a bad thing for a CPA firm to have only C-clients. In this situation, the firm’s client base could be described as a cluster of small clients that pay timely and are fun to work with but who have little potential to provide additional business. In this case, you would make sure these clients are reminded regularly of your various services through postcards, newsletters, seminars, and other means. In this way, they are positioned to refer you to others because they likely will not have many additional needs themselves. On the other hand, regarding your A- and B-clients, you need to have regularly scheduled personal contact with them to make sure you understand their priorities (and not just their financial priorities).
William L. Reeb, CPA/CITP, CGMA, and Dominic Cingoranelli, CPA, CGMA, CMC, are the co-authors of Becoming a Trusted Business Advisor: How to Add Value, Improve Client Loyalty, and Increase Profits, which is available for purchase at the AICPA Store. They are the co-founders of Succession Institute LLC.