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!
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.