Original post date December 16, 2008
Given our average deal size we used to think we needed to have a scaled down offer to get a foot in the door. Once in, we could then grow the account. We were wrong.
Here’s how I know. Looking back at the new accounts acquired over the last four years we found some interesting trends and confirmed some things that we knew intuitively (click on the image). When we measured the value of customers in their first year against the average time spent engaged with the client a few key insights emerged.
- Customer that grew to beyond $800K in their first year
- Customer who had first year revenues between $350-$600K
- Customers who represented under $250K in total billings from the year.
As Larry also mentioned; “Our big customers today came in as big customers…”. We’ve had the same experience and have grown our top 5 largest accounts by an average of 90% over the last two years.
Customers in cluster 2, the “Sweet Spot” represented the best of both worlds. Although their value was not as high as the “Rare Birds” they were more plentiful. They also had higher price points, high percent of follow on work and YOY retention than the “One & Dones.” Retention rates although not as high as the “Rare Birds” was good (a little over 33%). Bottom line – they represent the model that we need to build our coverage and services bundle against. We have also realigned our resources to help account development/retention activities against this group.
Why do low price point and short engagement acquisitions perform so poorly?
- Length of the engagement – too short to learn business/issues/meet folks/create a relationship, etc.
- They get the “B” team - the “A” team is on existing accounts, as a professional services firm that measure FTE productivity this will always be the case.
- Short term need vs long term problem - we were successful in building a relationship with target buyers within targeted accounts. So much so that they decided to “give us a try.” The problem with that is that it was usually a piece of work that wasn’t strategic.
- Size matters – our win rate and retention rate dropped dramatically on companies that had under $1B in revenues. The only exceptions were situations we were able to sell a solution as the first engagement.
- Culture/Attitude – some companies just don’t have a culture of working with outsiders. This very difficult to know until you’re in the door.
So as you are thinking about 2009 focus on aligning resources and efforts on;
- Retaining and expanding your biggest customers with new lines of business.
- Find your “sweetspot” based on this type of analysis…what is the right mix of services and price.
- Targeting big companies with big needs…there are many out there now just make sure you have the right offer.
Because at the end of the first engagement…a foot in the door just isn’t enough.