The short answer is yes.
How can this be? Large clients are huge revenue targets and we get measured in terms of revenue. But…small clients typically have better margins and get measured in terms of profit. Oh my.
In general large clients/prospects are more valuable (i.e. “needle movers”), so we should look into this a bit deeper.
Why not have all large accounts?
• The largest customers require a greater investment in the relationship
• They normally have the lowest margins
• Losing a single large account can be impactful to the business
To retain and grow in large accounts, you need to build relationships with multiple people at multiple levels, understand their strategic initiatives, the changing needs of their customers, how your solution is aligned with their goals, consistently measure client risk and constantly be proving the value you are delivering. Any change in the organization can put this business at risk.
So how do you determine the value that each segment (small/large) of customers can bring to you?
• Key contacts in smaller organizations often have multiple responsibilities. Instead of interacting with a lower level analyst or buyer on a day-to-day basis focused on a specific task, you have the opportunity to build relationships with experienced high-level contacts – likely an owner, or a VP that is responsible for not only your solution but how it fits into the business overall.
• There are more of them! Just like in building a team where the highest performing team is one that is made of varying backgrounds and experience, a group of contacts from smaller customers can provide a wider view of the road ahead.
• There is less red tape. Small customers have fewer (or non-existent) silos and can move quickly.
• When prioritizing initiatives, often the largest customer has more weight in process. But in meeting the needs of one customer, you’ll likely miss the needs of the market as a whole.
When servicing smaller customers, efficiency is key. You cannot afford to invest the same amount of service resources.
Every business is different and the ideal mix is different as well. Everyone knows that having 1 customer make up 80% of your total revenue is not … But what is the right answer? 70/30? 60/40? 50/50?
Can you articulate today how many customers you have that generate X and Y revenue levels? How about their respective profit or contribution margin? How many small customers do you have that also have similar profit margins?
Having a good handle on specific client profitability is the first step in your analysis of this segmentation impact. Start there and bucket into your revenue and margin categories. What trend do you see?
Our firm can help you with this analysis. We have tools and processes to analyze your client base down to the client profitability level and display the key metrics necessary for you to look at this segmentation and drive your strategy accordingly.
