Friday, January 7, 2011

Does Service Excellence Pay?

I've long been a passionate advocate for the value of delivering exceptional client service. My research and experience lead me to believe that service excellence is the best differentiation strategy available to the average A/E firm. That's because most firms are so, well, average when it comes to serving their clients. A passion for service excellence is hardly common in our industry.

Perhaps there would be more commitment to raising client service levels if the bottom line benefits were more evident. I've often been asked whether an investment in better service pays off in higher profit and client loyalty. It's a fair question, but one that's not so easy to answer directly. No one has specifically studied this issue in our business, to my knowledge. But there is some evidence that I think is relevant.

For many years, the best client service data relating to professional services has been compiled by BTI Consulting Group. I became familiar with their work back when they primarily served the environmental services industry. My former employer hired them on several occasions. BTI has since shifted their focus to other professional service sectors, particularly the legal profession.

I'm convinced that their research findings for law firms are relevant to our industry. Most data related to professional services are worthy of our attention. Plus I've noticed similarities between BTI's numbers and those compiled through studies in other industries. There are similar trends in the data for law firms and for the environmental consulting firms that BTI previously studied. So let's look at the evidence that service excellence delivers bottom-line benefits:

Higher profits. BTI has developed several criteria for service excellence based on feedback they got from law firm clients. Those firms that excel at client service according to those criteria report 30% higher profits than other law firms. That's substantial!

Sound too good to be true? Try this assessment: List your clients from most to least profitable. Then grade the strength of the relationship you have with each client, using a five-point scale. Based on my experience, I suspect you'll find a strong correlation between the quality of the relationship (a byproduct of great service) and profitability.

BTI also found that firms that had established client service standards (which are rare in our business) improved profits by 10.7%.

Higher client retention. Client service leaders have a 35% higher client retention rate according to BTI. Of course, that has a huge impact on profitability. PSMJ reported that an increase of just 2% in your client retention rate has the same effect on profits as cutting your costs by 10%. A study by Bain and Company found that a 5% increase in customer retention improves profitability 25 to 95%.

Over the years I've asked seminar audiences what percentage of their lost clients could be attributed to service-related problems versus technical problems. Estimates have varied from 70 to 90%. Interesting, isn't it, how much more we invest in improving our technical capabilities than we do our client service capabilities.

Higher fees. BTI found that client service leaders charged 7% higher fees than the average law firm. Another study found that service leaders charge 9% more for their services. You can confirm this by adding average fee per client to the assessment I mentioned earlier. Better still, ask your clients to score your client service and compare the results with the fees you charge each.

Higher ROI on your marketing efforts. Here's an interesting finding by BTI: Simply designating a single individual to oversee the firm's client service performance increased the marketing return on investment by 35.4%. In other words, build accountability into your service organization and watch your business development results improve.

Why? I suspect it's the link between satisfied clients and new business opportunities. These come through referrals, a stronger brand (which is rooted in client experiences), and a corresponding service-centered approach to business development.

Higher growth. PSMJ reported the results of a study that found that firms with excellent client service grew twice as fast and picked up market share at least 6% per year, while those with poor client service lost 2% per year. Obviously, it's much easier to grow if you retain a higher proportion of your clients.

So how will you boost financial performance in 2011? Step up the business development effort? Cut or contain costs? Improve collections? Don't overlook perhaps your best opportunity to boost the bottom line: Delivering better client service. The financial impact may not be significant in the short term, but over the long haul the evidence suggests that delighting your clients can be a highly profitable strategy.

1 comment:

FinalCutStudio said...

Great post! I'm not in the A/E industry, but I can see how this could translate to other design agencies. Thanks for sharing!