Cross-Selling: What is Your Firm’s Lifetime Value to its Clients?

Presented by

Ronald J. Baker, Founder

VeraSage Institute

Value creation and captureValue creation and capture

ValueValuecapturedcaptured

ValueValuecreatedcreated

Price

Client’s Profit

Costs

What are you really selling?

What are your customers

really buying?

Not jet engines.

Flying time

BUT

Not cement But On-time delivery

“When it leaves the factory, it’s lipstick. But when it crosses the counter in the department store, it’s hope.”

Charles Revson, Founder, Revlon

“The customer never buys a product. By definition the

customer buys the satisfaction of a want. He buys value.”

Peter Drucker

What People Really Buy

1) Good Feelings2) Solutions to problems; or

Expectations, according to Ted Levitt

Intangible Value

• Specialist expertise/knowledge• Unique social capital• Brand/reputation• Unique result––creativity & innovation• Reducing risk• Excellent experience• Make the customer “look good”• Relationship• What else?

Seven Purchase Risks

Performance Risk–Will not perform function purchased for

Financial Risk–Monetary loss if product fails (services higher risk than products)

Time and Loss Risk–Customer’s time due to failure (AOG)

Opportunity Risk–Risk of choosing one product over another (IBM)

Seven Purchase Risks

Psychological/Social Risk–Purchase will not fit customer’s self-concept. Restaurants, cars, movies, hairstylists, cosmetic surgery, etc.

Physical Risk–Chance the purchase will cause physical harm (medical care, Michelin tire ads)

Baker’s LawBaker’s Law

Bad customers drive out good customers

Customer Segmentation by Value

Value of Differentiation

Pain

of P

rice

Low

Price Buyers

High

ConvenienceBuyers

RelationshipBuyers

ValueBuyers

Low High

LoyalizationLoyalization• Is loyalty dead?• AICPA says: It cost eleven times more

to acquire a customer as to keep an old one

• 5% change in customer retention can swing profits 25%-100% (Bain & Company, Inc.)

Rewarding Customers– Loyalization

• Already have trust & confidence

• Access to information

• Lower marketing costs

• Marginal work more profitable

• Customer acceptable of staff

• Customer values your services more

Telling FactTop CPA firms generate 25-40%

of new business from sales to existing customers

We believe you can achieve 50-80%

Why Existing Customers Are More Profitable

• Acquisition Cost

• Base Profit

• Per-Customer Revenue Growth

• Operating Costs

• Referrals

• Price Premium

Year

Annual Customer Profit

Price Premium

Referrals

Cost Savings

Revenue Growth

Base Profit

Acquisition Cost

0 1 2 3 4 5 6 7

Net Promoter Score (NPS)Typical company loses half customers < 3 years

The Ultimate Question: How likely is it that you would recommend this company to a friend or colleague?

Dell had highest NPS

www.netpromoter.com

3 Types of Customers, 1-10 Scale

Promoters (P) = loyal enthusiasts (9-10)

Passives = satisfied but unenthusiastic, easily wooed by competition (7-8)

Detractors (D) = unhappy customers trapped in a bad relationship (0-6)

P –– D = NPS

Why CPAs Lose Customers

“My Accountant just doesn’t treat me right”“My Accountant just doesn’t treat me right”

Ignore themIgnore them

Fail to cooperateFail to cooperate

Let partner contact lapseLet partner contact lapse

Why CPAs Lose Customers

Don’t keep them informedDon’t keep them informed

Assume they are techniciansAssume they are technicians

Use as training ground for new team membersUse as training ground for new team members

Why People Select CPAs

Interpersonal skillsInterpersonal skills

AggressivenessAggressiveness

Interest in the customerInterest in the customer

Why People Select CPAs

Ability to explain procedures in terms the customer can understandAbility to explain procedures in terms the customer can understand

Willingness to give adviceWillingness to give advice

Perceived honestyPerceived honesty

Client Relationship:Accountant’s Point of View

80% Technical

20% Emotional

• Mathematically correct

• Properly reviewed

• Within time budget

• Profitable

Client Relationship:Client’s Point of View

20% Technical

80% Emotional

• Reliability

• Responsiveness

• Assurance

• Empathy

• Tangibles

What is Beyond TQS?

What is Beyond TQS?

• If you charge for stuff, commodity business

• If you charge for tangible things, goods business

• If you charge for activities you execute, service business

• If you charge for the time customers spend with you, experience business

• If you charge for the demonstrated outcome the customer achieves, transformation business

Thank You!

ron@verasage.com

Phone: (707) 769-0965 Twitter @ronaldbaker

Versage website/blogwww.verasage.com