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There is a sweet spot to be aspired to in your business endeavour; where you achieve perfect equilibrium between client satisfaction and an appropriate profit margin for your business. I use the concept of equilibrium deliberately. Many service providers get completely skewed in one direction or the other—giving up client satisfaction for the sake of profitability, or profitability for the sake of the client experience. This point, of course, brings a critically important decision. There are times when we consciously give up profitability for the sake of the client experience. Such times would include the early stages of business development, when business volumes have not reached the level needed for target profitability. And those times when, perhaps in resolution of an error, a decision is made to provide recompense in some form. What I am saying, fundamentally, is client experience always comes first, especially if you plan to be around for a while. I am also saying though, it is critical to have a specific margin in view objectively, and then to monitor every element of the revenue and cost structure of your business in order to achieve and maintain that margin.
The major firms do this. Many create numerous ‘micro-segments’ of their client base to get a sense of an ‘equilibrium’ profit margin for each segment and the implications this calculation must have on setting client expectations and then delivering against those expectations.
In my next few articles I will dig into this profit equilibrium concept in some detail. But let me leave you with this. You have probably calculated already that the cost involved in acquiring a new client is a multiple of the cost of keeping an existing client. There are important decisions to make here.