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Using the LSRP Score to “BCG Code” Clients

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In our last session you learned how to grade your clients based on their longevity (their Life Score), their projected lifetime value (Services Score), the closeness of the relationship (Recency Score) and their ability to generate revenue streams (Profitability Score).

 

If you remember, the objective of this exercise was to assess your clients fit with your newly developed Business Model and Strategy, and the ability of your services (and your products) to fulfill the needs of your target market.

By developing an LSRP Score, you were able to score your clients on how closely they fit with your model and needs. We’ll get to how your services fulfill their needs a bit later.

Right now, you need to know how to handle your clients after you’ve scored them.

Enter the Rainmaker version of the BCG Matrix.

Getting the feeling here that the University left a few details out of your education?

The Boston Consulting Group’s “Cash Cow, Star, Problem Child and Dog” Matrix is world famous as a means of classifying products. I’ve adapted the categorization calculations slightly so that you can quickly categorize clients from their LSRP scores.

Download the form and let’s take a look.

The matrix is designed to help you categorize your client portfolio, and allow you to prioritize your upsell efforts. It is not a perfect tool, but its simplicity and speed make it useful for local practitioners.

To use the matrix, first add the Lifetime Score to the Recency Score, and then add the Services Score to the Profitability Score from the LSRP Scores you have developed for each client. You will then have two totals you can put into (x,y) coordinate positions in the matrix.

Plot the coordinates of each client onto the matrix to get an idea of how you might consider the client as part of your client portfolio.

Matrix coordinates can range from (2,2) to (10,10). Clients who wind up at a (6,6) coordinate may be classified as either problem children or stars. Both categories should be motivated to grow and become Cash Cows.

To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates. You’re doing the same thing with your clients.

Cash cows are long term and highly profitable clients. These clients typically generate cash in excess of the amount of cash needed to maintain the relationship. They are regarded as practice evangelists and every practitioner would be thrilled to have as many of this type of client as possible.

Cash Cows are to be “milked” for referrals continuously with as little effort as possible, since such effort is not usually needed beyond the maintenance level.

Dogs, more charitably called pets, are new or stagnating clients with low profitability and currently a low projected lifetime value. These units typically “break even”, generating barely enough cash to cover the expenses of service.

Though keeping a break-even client provides the social benefit of maintaining a client relationship, from a practice growth point of view such a client is worthless, not generating enough cash to help your practice grow.

They depress a profitable practice’s return on assets, one of your management ratios. Dogs, who cannot be promoted, should be encouraged to seek a replacement practitioner.

Question marks (also known as problem children) are clients with potential long term value, but being unprofitably serviced. They are a starting point for most practice growth.

Question marks have the potential for increased profitability through higher fees or increased services, and eventually become cash cows.

If question marks do not succeed in becoming more profitable, then after perhaps years of cash consumption, they will degenerate into dogs. Question marks must be analyzed carefully in order to determine whether they are prospects for additional services or higher fees.

Stars are new clients delivering high profitability. Stars become your next cash cows.

Stars require effort to fight defections and maintain profitability scores. If you do not continue providing the extra attention needed to promote them to Cash Cows, they may become dogs due to low relative profitability.

As a practice matures and its growth slows, all clients have the potential to become either cash cows or dogs. The natural cycle for most clients is that they start as question marks, then turn into stars.

Eventually the client stabilizes and the practitioner is distracted as the client becomes a cash cow. At the end of such a cycle the cash cow turns into a dog.

The overall goal of this ranking was to help you analyze your client portfolio and decide which of your clients to focus on, and how much; and which clients to ignore. You also use this understanding of your clients to recognize the Strengths and Weaknesses of your Target Market selection and your Client List when reviewing your practice with the TOWS matrix.

Only a practice with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio has:

  • Stars whose high share and high growth assure the future;
  • Cash Cows that supply funds for that future growth; and
  • Question marks to be converted into stars with the added funds.

Make a note for your TOWS matrix analysis showing your client mix as an internal strength or weakness. The better your client list is, meaning the more stars or cash cows you have, the greater your internal strength, your ability to attract other clients. And of course, the more dogs and problem children you have, that cannot be improved, the more internal weaknesses you have.

Save this note, or start adding it to your TOWS matrix worksheet. We’ll use it later, after we’ve finished with your external analysis.

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Best to you and yours,

kirks-sig

 

Kirk

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