Friday, November 14, 2014

Repeat Business Rate Is Overrated

My first client, a 35-person engineering firm, boasted a repeat business rate of 85%. Unfortunately, almost all that repeat business came from one client, a large energy company. When that company was acquired by a still larger one, the work began disappearing. Within a few years, the firm was out of business.

Most A/E firms tout their repeat business rate as a sign of distinction, an indicator that clients love them so much they keep coming back. But it is hardly a reliable measure of health. PSMJ reports that the median repeat business rate (percent of revenue from repeat clients) is 75%. Interestingly, that number has changed little in the last 10 years, even through the worst of the recession.

Given how A/E firms struggled during the recession (and many still are), any financial indicator that remained unchanged would have to be judged suspect. In fact, many firms undoubtedly saw their repeat business rate improve as revenues fell, because it was so difficult to acquire new clients. Has client retention held steady as the repeat business metric might suggest? The evidence indicates that holding onto clients is harder than ever.

So why does it matter? Well, firms often resist measuring client satisfaction or improving service because they can point to a favorable repeat business rate. Others (like my first client) find themselves vulnerable to a major client defection because they become too comfortable simply keeping busy without winning new clients.

A misleading metric like repeat business rate can have an adverse affect on your business. It can lull firm leaders into complacency, or obscure significant threats or weaknesses. The fact is that the best firms I've worked with had repeat business rates of 75-80%, as did the worst firms. In some cases it indicated satisfied clients and strategic relationships. In other cases it pointed to an inability to grow the business with new clients.

It's not uncommon for A/E firms to derive 80% of their revenue from a relatively small proportion of their clients (15-30%). So the reality behind the repeat business rate is that most firms suffer from a fairly high rate of client turnover. Of course, it's debatable what percentage of those clients have a realistic potential for becoming repeat clients. Some aren't prone to showing loyalty to any firm; others only sporadically have need for A/E services.

There's no easy way to measure client retention in professional services. If you're looking for marketing value, writing "68% of our clients hire us again" probably sounds better than "80% of our revenue comes from repeat clients." But what's a good number? You don't have any industry benchmarks. And the business value of that metric is questionable without bringing revenue or profit into the discussion.

This white paper by consultant Harry Mills describes some interesting ways to analyze the correlation between your revenue, profit, and clients. If you want meaningful metrics to gauge how you're doing with clients (in addition to measuring client satisfaction), I'd suggest starting there. If you happen to have any other good ideas for this kind of metric, please share them!

Thursday, November 6, 2014

Getting Your Phone Calls Returned

There's a good reason you don't like making cold calls: You've been on the other end of those calls. Americans are united in their dislike of unsolicited sales calls, hence the Do Not Call Registry. So how are you supposed to initiate a conversation with a prospective new client?

Slowly emerging from the Great Recession, I can imagine that clients are more tired than ever of hearing from A/E firms who "just want to introduce" themselves. That's all the more reason not to answer the phone or return calls from strangers. No doubt this adds to the reluctance of many technical professionals to get involved in selling. But you need to be developing new business! So how can you get prospects to return your calls? A few suggestions:

Give the client a good reason to call you back. It's pretty simple, when you think about it. If the client sees a obvious benefit in returning your call, he's most likely going to do it. The reason most of your sales calls aren't returned is you haven't defined the benefit to the client. Do clients really want an introduction to still another A/E firm? You have to do better, and explain why there's value for the client in calling back. Which leads to my next point...

Identify a specific client need before calling. A cold call is driven by the seller's needs. The seller doesn't know what the potential customer needs, but she knows she has to make a sale. So she calls prospects that might have need for her company's product or services. It's a self-serving motive, disconnected from our needs, and that turns us off when we receive such a call. Same for prospective clients.

That means you need to make a preliminary determination of the prospect's needs before calling. "Warming the call" by learning about client needs beforehand enables you to speak directly to a matter pertinent to the prospect, instead of fishing for a possible connection. That gets you closer to getting your voicemail returned, but don't expect it until you get to the next step.

Offer something of value. It's hardly compelling to leave a message simply stating, "I understand you might be needing help in designing a new automated control system for your plant." That only describes a benefit if the client doesn't know any firms that do that kind of work. What are the chances of that? A better message would be: "We recently worked for a client that added an automated control system for a plant very similar to yours. We were able to reduce their costs by 45% by using an innovative design concept. If you'd like to hear more about that, please give me a call."

Yeah, coming up with a good reason for the client to return your call (what I call your "entree") isn't easy. But it works. It requires more work up front. So you can make 20 shotgun calls to prospects and maybe get 3-4 to return your call. Or you can offer an entree to 5 prospects and get 3-4 to return your call. Which seems the better strategy?

By the way, your chances of eventually making the sale are substantially increased when you take a more client-centered approach, starting with that initial contact.

Make it easy to return your call. Think of the things that frustrate you when someone leaves a voice message, and make sure you don't repeat any of the same mistakes. These could include not speaking clearly, making it hard for the prospect to catch your name. Or saying your phone number too quickly to write it down. Or perhaps the prospect can't get through should he call. Here are some suggestions for avoiding such frustrations:
  • State your name and phone number at both the start and end of your message. That means the prospect doesn't have to listen to the whole message again to get the number. Give this information slowly and clearly, spelling your name if there's a chance of confusion.
  • Tell the prospect how best to reach you. You don't want to play phone tag with someone you don't know well. If you offer your cell phone number and invite a call after hours if this is more convenient for the prospect, then you're hinting that you consider the call important.
  • Let the prospect know that the call will be brief. For example: "I can explain in 10 minutes and then you can decide if there's value in our meeting to discuss the matter further."
If you were referred, state up front why the referral was made. I would advise that you still offer your entree and not simply drop a name. The real value of the referral is when the prospect trusts the one who referred you as having the prospect's interest at heart. So don't let the referring party down; explain why he or she thought the prospect would benefit from talking to you.

Always try to schedule the next meeting or communication. One of the simplest ways to minimize this problem of unreturned calls is, when you're meeting or talking with the prospect, to (1) establish the basis for the next conversation and (2) if possible, schedule it. Otherwise, you may find yourself in the same predicament—competing for the prospect's time and attention—when the next contact comes around. 

If the client won't commit to a next time, that probably tells you something about the likelihood of the relationship developing much further. It could be a sign that your next call won't be returned either.