Thursday, November 28, 2019

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. Industry data suggests that the average repeat business rate—measured as the percent of revenue coming from repeat clients—has hovered in the 75% range for many years. That includes during the Great Recession.

Given how A/E firms struggled during the recession, I'd suggest that any financial indicator that remained unchanged during that time 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 really held steady as the repeat business metric seems to indicate?

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 (15-30%) of their clients. 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 short-term 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 seems 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? We don't have industry benchmarks beyond the percent-of-revenue metric. And the business value of the percent-of-clients metric is questionable without bringing revenue or profit into the discussion.

The best way to measure client loyalty is to use multiple metrics in combination. Let me suggest experimenting with a mix of three metrics—client lifetime value, client retention rate, and client satisfaction. This presentation by Client Savvy provides a great summary on how to calculate and evaluate these metrics.

This white paper by consultant Harry Mills describes some interesting ways to analyze the correlation between your revenue, profit, and clients. I'd encourage you to consider using some of these less common measures. And if you happen to have any other good ideas for measuring client loyalty, please share them below!

Thursday, November 14, 2019

Engage People With Stories

As children we were natural storytellers, relating events and topics through the lens of our experiences and emotions. But as we grew older, especially if we gravitated toward a technical discipline like engineering or science, we were taught that the way to communicate was through the use of information and facts.

Yet we all still love stories. We read novels, watch movies, attend plays, and share stories over the dinner table because these intersect in a special way with our humanity. We can relate, we can feel, we can empathize through the power of story. Societies and organizations owe much to storytelling. Through stories we reinforce core values, pass down traditions, and convey a sense of connectedness with others in the community.

Not surprisingly, we are increasingly learning about the power of story in business. Studies show that stories can help you build your firm's brand, sell your services, enhance employee engagement, or change corporate culture. Stories are one of your best persuasive tools because they engage people emotionally and relationally. That's why storytelling is emerging as a key leadership skill.

So in the business world, what is a story? Consultant Kaihan Krippendorf describes a classic five-point "story spine" that usually forms the structure of both timeless fairy tales and compelling business narratives: (1) reality introduced, (2) conflict introduced, (3) struggle, (4) conflict resolved, (5) new reality. Doesn't that capture the essence of the typical success stories that we love?

In the article "How Storytelling Builds Next Generation Leaders" published in MIT Sloan Management Review, author Douglas Ready outlines five components of effective stories used in leading others:
  • Context-specific. The story obviously should be directly relevant to the issue at hand.
  • Level-appropriate. The story should resonate with your audience, germane to their rank and role within the firm.
  • Told by respected role models. Any story intended to help effect change is most effective when the storyteller is credible.
  • Have drama. Conflict or tension always enhances a story. This doesn't necessarily imply conflict between people, but more often between facing a problem and applying the solution.
  • Have high learning value. A good story in this context is one that illustrates the actions and attitudes that are desired.
With that background, let's consider some ways to effectively use stories as a leader in your firm:

Don't just tell, illustrate through a story. Of course, it's easier—especially if you're the boss—to just tell people what to do. But that's not nearly as productive as inspiring them to do what you want. A story can motivate far better than policy, procedure, or directive. I often use stories in training, either positive ones (this firm did this and look at the success they achieved) or negative ones (this firm didn't do this and look at the trouble they got into).
Stories are an excellent way to ingrain core values and purpose within an organization. Describe what these look like in action. Stories make them real, tangible, accessible. That's why storytelling is so critical to culture change initiatives.

Share internal success stories. Employees often respond best to stories of what their colleagues have accomplished, because the narrative is perceived as more relevant and credible. Be sure to capture and share those stories as much as possible, and celebrate successes. At the next tier, stories within your industry can be more readily received than those outside your industry (where people can question the relevancy).

Engage the heart. We are most impacted by the stories that move us, that prompt an emotional response. This is an element often missing in our communication in this business, as we tend to favor dry data and facts. But persuasion marries information and emotion, with the latter driving the decision making process. Why? Because it's human. Stories are effective because of they're personal and relatable.

So don't just talk about actions or milestones or metrics. Talk about people, what they thought and felt, what happened to them, how they responded, and what they accomplished (or project these story elements in the future if you're selling or writing a proposal). Focus on human solutions, not just technical ones, because the former is much more valued (and persuasive) than the latter.

Make your audience the vicarious protagonist whenever possible. Who doesn't enjoy stories where you can identify with (or perhaps imagine being) the hero or leading character of the drama? We commonly tell stories about ourselves and our experiences. But try to shape these stories in such a way that others can imagine themselves in a similar situation.
How? Relate the story specifically to your audience: "I was in the same predicament as you are..." "You remember what it's like working with this client..." "This company is very similar to yours..." Statements like these help your audience envision themselves in the story you're telling. That's what gives story its power to affect people and change organizations.

Tell clients about their peers, not your firm. Similar to the point above, the stories you use to persuade prospective and existing clients are more effective when the client can directly relate to the protagonist. We often share "case histories" that prominently feature our firm. But a better approach is to put the client that was in the story front and center: "Our client was facing the same problem and here's what they did..." Of course, it's evident that your firm had a critical role in the story. But it's a better story to share with clients if another client is the focus.

Share stories with passion. If the power of story is the life it brings to the facts, you certainly don't want to tell it in a lifeless manner. This is true whether the telling is oral or written. Bring stories to life by sharing them with enthusiasm and passion. If you seem disinterested, your audience is likely to tune you out even if the story at its core is compelling. Infuse feelings into the narrative. Engage your audience emotionally as well as intellectually. Of course, be sure your stories always feature the people in them.

Would you like to become a better storyteller? Listen and learn from those who excel at it. Collect stories that can be useful for your business purposes. Draw from your own experiences and practice sharing these in a way that engages your audience. Be deliberate in inserting stories into your communications until it becomes more natural. Pay attention to how your audience responds so you can learn what works and what doesn't.

When you develop your skill as a storyteller, the stories you share of past experiences can be instrumental in launching the stories that are yet to come.