I read an article on Inc.com last week by Damon Brown in which Damon writes that if you run a business in a post COVID-19 world ‘You Need More Customers, Not Higher-Paying Ones’ – which [as someone with an interest in pricing] caught my attention.
There is no doubt that right now the appeal of diversifying your customer base and revenue stream is going to look appealing. As Damon writes, “your business needs varied and multiple customers” for essentially three reasons:
- Diversify income streams
- Lessen the over-dependence effect – security in numbers
- Protect your business against Black Swans
My mother would have called this: “avoid putting all your eggs in the same basket”.
But while insulation from risk is undoubtably core to a lawyer’s heart, right now – appealing as it may seem – would be the wrong time to be looking to expand your client base. And I say this for the following three reasons (in inverse order to Damon’s):
- This is a pandemic, not a Black Swan, event: in that none of us have a clue how we got here or how we will get out of it – we are not here because of strategic issues.
- Pareto: notwithstanding how large your client base is, the facts are in -: 80% of your revenue comes from 20% of your clients. Expanding your client-base isn’t really going to have much beneficial impact on this, rather it’s going to suck-up much needed diminishing resources.
- Diversify income streams: isn’t a customer-based issue in professional services firms. If you truly want to diversify your income stream you don’t need to expand/diversify your client-base, you need to expand/diversify your product offering. That’s a whole different problem (and one which could be achieved).
In short, you don’t need to be expanding your client-base, what you need to be doing is focussing and developing your relationships with those top 20% of your clients.
Or, as Ron Baker has written: “It’s one thing to get more business, it’s another thing to get better business”. And while predictability and certainty of revenue is great:
“…if you bring in those customers at the wrong price, you have done nothing but add layers of mediocrity to your firm”.
Some thoughts to consider before you start chasing rabbits down holes…
Again, these just represent my thoughts though and always interested to hear your views.