Without marquee clients, your firm is destined to have a client base that consists of small and midsized companies that have steady, but low-margin fees today and steady, but low-margin fees tomorrow.
Without such clients, you will be stuck in gear as a merely good firm. On the other hand, a successful firm with a sustainable brand is a firm that has “scale,” with permission from the market to service complex, sizable clients who have multiple locations and raise private and public capital as they grow. Receiving market or brand permission enables your firm to have the ability to grow and prosper with clients over the long term.
CPA firms should look at their client base as if it were a bell curve. Here is what we typically see at successful firms:
Let's take a look at the four quartiles. Quartile 4 clients are generally small and marginally profitable. Sometimes they are tax-only clients. Clearly, these clients help firms by keeping skills sharp and by absorbing overheads. But I encourage firms to annually prune clients, the ones with decreasing margins, small fees and little, if any, hope for improvement.
Quartile 3 clients are good clients with good margins, but the services they require are rather routine and not very challenging. While these clients cover overhead and help staff to learn, your firm will never develop into a sustainable brand if these clients dominate your practice.
Clients in Quartile 2 are important to your firm as they have serious potential for growth and enhanced margins, and with that growth comes an increasing appetite for additional professional services. Some of these clients have the potential to be marquee, brand-builder clients as they break through and start experiencing serious growth.
Marquee clients usually are Quartile 1 clients. They are recognizable names in their industry sector and, most importantly, they are companies that are growing organically, consummating mergers and acquisitions and raising private and public capital. Again, as they grow, your services expand, margins improve, and your firm grows. But the key is they are credential builders that help attract both quality talent and additional marquee clients. Having them on your client list gives you instant credibility. The underlying assumption is that if you handle Company X, you must be highly qualified, and you will be able to help a prospect with their business challenges.
Attracting marquee clients with specialized skills
So, how do you attract, develop and retain marquee clients? You do it by attracting, developing and retaining partners who have relationship skills, industry expertise and impressive credentials. But remember — it’s a marathon, not a sprint.
In most situations, accounting and auditing partners are the principal relationship partners in a CPA firm. They generally have the ability to build relationships and are the key to becoming a sustainable brand. Tax partners, unfortunately, are generally good technicians but poor relationship partners. Many of them see accounting and auditing partners as their clients. While there certainly are exceptions, tax partners are essentially “order takers” from the accounting and auditing relationship partners. The typical scenario is the relationship partner meets with the clients, realizes the client could benefit from an estate plan, goes back to the office, and gives the appropriate partner a “ticket” or an engagement to develop an estate plan for the client. Consulting partners, on the other hand, are a hybrid of accounting and auditing partners and tax partners. They know they have to build relationships with clients (and, in many cases, they do it effectively), but their relationships tend to be short-term as they tend to be project-oriented in when a project starts and when it’s completed, hopefully on time and on budget.
Industry specialization
So, how do accounting and auditing partners, the relationship partners, create value for clients? They do it principally through industry specialization that provides insightful and personalized accounting, tax and consulting to clients by understanding the nuances of their industry environment and tailoring their services to assist in meeting business objectives. Industry specialization also identifies “best practices” and benchmarks clients as they seek to improve.
What does it really mean to have industry specialization in your firm? The most effective way is to have your partners and managers concentrate, if not dedicate, themselves to one or maybe two industry practice groups charged with meeting the following objectives:
- Core: To fully understand the nuances of the industry and demonstrate expertise in the marketplace;
- To provide the greatest financial return to the firm and significant value to clients;
- To build depth of resources and industry capability across the firm; and,
- To communicate effectively with the partners and incorporate the group’s objectives into business and marketing plans.
- Marketing: Utilize the strength of the firm’s marketing professionals to build brand identity and market awareness and position the firm as a leader in the industry; and,
- Identify and target marquee prospects within the industry to upgrade the client base and leverage these relationships to maximize practice development efforts.
- Practice development: Generate top-line revenue growth through new business acquisition in accordance with assigned goals;
- Develop strong referral relationships with industry centers of influence; and,
- Produce top-line revenue growth through cross-selling.
- Professional development: Build industry understanding and expertise via education and training.
- Client service: Offer value-added service to clients provided by firm specialists.
If there is a meaningful way to grow organically in these post COVID-19 years, it can be done through industry specialization. This is the vehicle to attract larger, more complex clients that will have specialized needs, including advisory and consulting needs.
