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Your LSRP Score Calculation. What’s An LSRP?

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Start reading almost any book or article on how to build your practice and sooner or later you’ll come to a section where the guru’s talk about ranking your clients by profit or revenue, with your top clients being those that fit the Pareto 80/20 Rule, or some such.

 

But, what about client Longevity?

What about client Enthusiasm?

Your LSRP calculation covers all four of your major indicators of client worth, profit, enthusiasm, and lifetime value.

Take a moment to download the Rainmaker LSRP Score Worksheet, and study the instructions for just a moment as I go through them.

Note that the LSRP Score Worksheet places a value on the length of the client Life or lifetime relationship, the number of separately billable Services a client has engaged you to provide, the Recency of your last client contact activity, and uses a rate multiplier calculation to estimate the Profitability of each client.

With an LSRP analysis, you can segment your customers and use past and current behavior to predict future behavior and help you adjust your services to target that future behavior. Clients in the highest rankings (5+5+5+5) are probably your best customers. They have recently purchased, purchased multiple services and generally spent the most for your services. They might be candidates for a client incentive program, or you could ask them to participate on a customer advisory panel or survey them to see what you’re doing well and how you might better serve them and your other customers.

Clients in the lowest rankings (1+1+1+1) are currently worth the least to your business and may be a drag on your profits. Their only redeeming grace may be that they are listed as clients.

Clients in the lowest LSRP rankings are currently worth the least to your business. Click To Tweet

Don’t ignore them, but the probability is that you may have to work on the relationship to increase revenues and lifetime value.

And what about the clients in between? They could be clients whose rankings are dropping and you are in danger of losing as a client. They could be clients whose rankings are increasing and with a little more exposure to your practice and your services, could become a better client.

That’s where one of the greatest benefits of LSRP analysis comes in to play, the fact that you can monitor your client’s behavior over time or after a year end.

With the Rainmaker LSRP Scoring Worksheet you can gather information that will allow you to compare client behavior today to what it was six months ago.

You can see which clients are deteriorating so you can take steps to head off a defection. Perhaps a number of clients are moving down which could indicate a problem with your service or work product quality.

You can also monitor client behavior after tax season. If customer behavior improved after tax season, then you found a way to connect with your clients.

Let’s take a closer look at each factor.

Life (or Longevity) – When did the client originally hire you in this series of engagements? If there has been an interruption, or defection, measure since the date the client “returned to the fold,” not from the first time the were ever a new client. If a tax client came back after three years of doing their own return, measure from the date they returned.

The Life score of your client is an indication of Client Loyalty, and show the potential for increased fees and revenues.

Long term clients become Practice Evangelists. Practice Evangelists are your raving fans, evangelists who are so hopelessly in love with your service that they will go out of their way to promote you. As evangelists for your services, long term clients are the source of referrals for your services.

Long term clients are prone to price insensitivity. When a client is price insensitive they are not influenced by the price of the services you provide. Even if their fees are increased, the client will still purchase because they trust you.

Long term clients are often loyal because they have not had any issues with your product or service. Since they have not had any issues, the costs of servicing their account is lower, leaving you free to focus your efforts on other aspects of your practice.

Services – As you gain a larger and larger share of a client wallet, your relationship deepens and the expected life of your client relationship extends. A client who has retained you to provide ten distinct Services may have an average client life of ten years, where the industry average for clients who have only retained you for a single service is five years.

The Services Score is an indicator of the your potential Client Lifetime Value.

Recency – When did the client last communicate with you? A call about a pending deadline is not a meaningful contact. A meaningful contact is when the client contacts you for something such as advice or a definition of some sort. As a secondary measure, you can count contacts you initiate, but they must be meaningful.

A meaningful contact is when you are either face to face with the client, or holding a meaningful conversation is some way.

Of a listing of 24 factors that clients report caused them to change practitioners, the two top items were intertwined, communication and respect. The clients did not feel that their accountant respected them or valued their business, and the main reason was that the accountant did not communicate meaningfully or was not available.

Profit – Your objective is to generate enough fees to not only cover expenses, but to generate a profit for yourself and your partners, if you have any. Since small practitioners are usually limited in their ability to calculate profit and loss on a per-client basis, a reasonable approximation is calculated using the cost of labor in delivering the services to the client. The higher the multiple, then the lower the labor cost percentage and the higher the profit percentage.

In this score segment, the total size of the engagement does not affect the multiplier. Factors that come in to play are staff utilization and efficiency, as well as your pricing model. Do you price by billable hour, which restricts your multiple, or do you operate on fixed fees and value pricing models, which allow your multiples to grow?

In our next session, I’ll show you how to use your ranking to weed and feed your client base until your practice blossoms.

Cute analogy, huh?


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Best to you and yours,

kirks-sig

 

Kirk

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