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 to be “milked” for referrals continuously with as little effort as possible, since such effort is not usually needed beyond the maintenance level.
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 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 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.
Join us here at Practice Builder Publishing and become a part of the community, whether you become a contributing author, a peer recruiter, or merely a raving devotee of the Practice Builder Publishing resources, I'll work with you personally so you can reach the goals you set.
Best to you and yours,
P.S. Think I'm full of B.S.? Maybe you ought to let me know what you think. Plop your comments in the section down below the related articles and let me know what you think.!
P.P.S. Got questions about products and services I talk about, the terms of service, privacy nd all that stuff related to Practice Builder Publishing? Click Here to read the fine print.
Share your experiences, and pick our brains.
Get GREAT Results - Fast!
I would love to see you become a part of the Practice Builder Publishing, and work with you personally to reach maximum profit potential this year! Nothing I teach or help you with damage your credibility. It will simply get you more clients and help you make more money.
If you stop searching for the next magic trick, the perfect software, the "shiny object" that's going to do all the work for you (note: it doesn't exist)- and just focus on building & serving your market - you'll actually start seeing GREAT results. FAST.
On the Practice Builder Publishing site, I teach everything I have learned over the years, and how you can use it effectively and efficiently. One of the coursesI teach is the "Absolute Beginners Guide To Starting And Building Your Own Accounting Practice When You Are Flat Broke" training course, and it's only $27.
To get started building your practice, and building it FAST, all you have to do is click this link below. Click the button below and order now!