Managing Your Firm's Profitability at the Client Level
(continued)

Next, further develop your client profitability model by asking a few questions: What does a profitable and valuable client look like? What do our most and least profitable clients look like? What services do we provide these clients, and how do they fit in the overall firm plan? What profit range do we want most of our clients to fall in? How many clients do we need in each service area to reach our goals?

Client Profitability Plan
Once you have answered the questions in your client profitability model, you can then formulate a client profitability plan for each by:

• Forecasting the expected billings and gross profits.
  
• Budgeting staff time and associated costs to perform a client’s work.
• Applying firm overhead to project net profit per client.
• Determining if the initial round of profitability meets the firm’s goals.
• Measuring actual results over budgeted goals.

Once you have budgeted and measured a client’s actual results, you will need to determine how this client fits into the practice’s overall profit goals. The 80/20 rule — where 20 percent of your clients drive 80 percent of your business — also works at the profit level. In reviewing your clients’ profitability, determine where 80 percent of your most lucrative business comes from and focus your energies in those practice areas. For the other 20 percent, consider creating an exit plan.

Cultivate Alliances
An effective way to eliminate unprofitable clients is to sell or refer them to another practice by building relationships with other firms whose goals may be different from yours. Outsourcing some of the lower-profit work can also boost the productivity of your staff and decrease overhead during non-peak times.

Managing client profitability, and ultimately your firm’s profitability, will help increase both the value of your firm and employee productivity.

Previous page