This article was last updated on 11 September 2023
Client retention vs. client acquisition – what is a healthy balance between the two in consulting business?
Should they prioritize retaining clients and ensure pipeline predictability and revenue reliability?
Or is it better to allocate most of the time to acquiring new clients, expanding the reach, and adding client diversity to daily work?
My readers know I am a huge proponent of nurturing and expanding relationships with current and past clients (I discuss it at length in this article).
However, it’s not as simple as ‘prioritize client retention at all costs’. There is a lot more depth and nuance to it than that. When approached incorrectly, a consulting growth strategy based almost entirely on client retention can undermine that growth.
So in this article, I’d like to discuss the risks and benefits of client retention and acquisition – or farming and hunting in consulting – and how high-performing consultancies maximize the benefits of each while neutralizing the risks.
Hunting vs. farming in consulting growth
I see client retention as an act of farming. Of course.
It’s about ensuring the soil is fertile, planting and nurturing the seeds, and harvesting the crop. Much like farming, client retention is a long-term activity. It’s about commitment and repetition – year after year.
Client acquisition, on the other hand, is similar to hunting. It’s unpredictable and consumes a lot of energy. A hunter may strike gold and return with a deer in just a couple of hours or spend days in the woods and have only a couple of pheasants to show for it.
Regarding business development and growth in consulting, firms have to devise a balanced hunting-farming strategy that allows them to have a solid foundation of predictable revenue while leaving room for growth and new opportunities.
That starts with understanding both the risks and benefits of client acquisition and client retention practices.
Benefits of farming
The main benefits of farming in consulting are stability and the opportunity to deepen consulting expertise.
- Stability: existing client revenue is critical to the stability of a consultancy (small or big). It gives consulting leaders peace of mind and a cash flow buffer. It allows them to be precise in planning and allocating resources. It protects from excessive revenue volatility.
It reduces the amount of resources that must be spent on client acquisition to fill up the pipeline of projects. Pipeline forecasting and management become more accurate and straightforward when retained clients channel a large amount of revenue.
- Expertise depth: working with existing clients over long periods forces consultancies to continuously strive for depth in expertise. The more the firm gets to know its client, the larger the context for the client’s pain points becomes. Now, instead of only looking at the immediate context of a single department, for example, the firm acquires the knowledge of various external factors that can significantly impact the pain points – industry trends, regulatory background, competitors, etc.
By working with the same clients over and over again, consultancies have the opportunity to make their offerings increasingly valuable.
- Cross-selling: establishing long-term partnerships with clients means building and growing trust. This, in turn, allows firms to identify cross-selling opportunities – be it the services offered by a different department or consulting leader or offering services to another geographical region.
- Social proof and referrals: existing clients make for excellent case studies and generate referenceable work. Consulting firms can showcase in their social proof the immediate impact of the initial project and the long-term value it can deliver to its prospects.
It also makes it easier to acquire new clients through references. Once a client trusts the consultancy and sees the value of working with it, this client is more likely to recommend the consultancy to its network – not to mention the particular, results-driven type of reference that the client is now able to provide.
- Pilots, tests, proof of concepts, validation of new methodologies: trusted, long-term clients are perfectly positioned to test new services, value propositions, and methods. Before rolling out a new service to the market or announcing new positioning, consulting firms must gather feedback. This is best accomplished by having in-depth discussions with the inner circle of clients, who are more likely to listen and engage.
- Standardization of processes and concepts: delivering the same work every month/quarter/year allows firms to develop efficiency gains. Repetition makes it easy to spot inefficiencies, set up processes, optimize tech stacks, create new, more efficient methodologies, forecast precisely how much time is needed for each task and which staff member is best suited to perform it, etc.
This type of standardization of processes and concepts is hard to achieve when a consultancy’s time primarily caters to new clients with unique needs and challenges.
- Lifecycle discovery: establishing long-term engagements with clients allows consultancies to discover typical client journeys over a more extended period. It can trace how a solution the firm helped the client transition to is getting adopted across various departments over time. It can be gaining a deeper understanding of how the firm's processes helped the client establish an impact on the rest of the company.
- Better profitability: Developing existing clients boosts profitability. Acquiring new clients is expensive and time-consuming. In contrast, existing clients already trust the consultancy, leading to lower BD costs. In my experience, long-term clients often have larger budgets for projects, and with established processes and knowledge, the consultancy can deliver services more efficiently. This reduces costs and increases margins.
Recommended reading: Why Repetition Is the Path to Becoming a High-Performance Consultancy
The dark side of farming
Of course, there are some inherent risks in placing most revenue in the hands of existing clients. Consulting leaders must be acutely aware of these traps and design strategies to avoid them. These traps include:
- Shifting power dynamics: consultancies risk losing power due to revenue dependency on existing clients. Existing clients became too dominant in the relationship with increasing price erosion and scope creep.
- Pleaser syndrome: firms with a large percentage of revenue generated by only a handful of clients also feel pressured to please these clients at all costs or risk losing a big chunk of revenue. It’s not uncommon for existing clients to ask all sorts of small stuff, and the consultancies become order takers instead of trusted advisors (with pricing consequences) to please the client.
This also means that consultancies gradually transition into hourly work instead of value-driven project work. Their contribution is now measured by the number of hours they performed instead of the value of the outcomes they deliver. This results in the devaluation of consultancies’ work and income.
- Growth limitations: While growing the amount of revenue a single client delivers over time is possible, relying on farming as a primary source of business growth is unrealistic. Firms must remain proactive in adding new clients to the portfolio – growth will stall without it.
Benefits of hunting
While client retention creates stability and expertise depth, client acquisition keeps the consultancy sharp and allows it to grow.
The main benefits of hunting in consulting are:
- Pipeline growth: regularly infusing the pipeline of projects with new clients protects that pipeline from getting stale. It’s the main engine of growth.
- Reputational growth: high-performance consultancies use their project work to grow their reputational footprint. New clients mean new case studies, new insights into the target market's pain points, new perspectives on upcoming trends, etc. It also means more referral work, word-of-mouth marketing, and industry awareness of the consulting firm's expertise.
- Pricing health: consistently adding new clients allows consultancies to maintain a certain level of pricing and, as a firm's expertise deepens and the resulting value of a consulting offering increases, to increase the pricing level.
As mentioned earlier, losing the power to a select few clients risks devaluing a firm's work. Recruiting new clients allows firms to counteract that.
The dark side of hunting
Hunting in consulting has serious downsides, and consulting owners and partners must be mindful of these disadvantages.
- High(er) cost of acquisition: the rule of sales and marketing has always been that acquiring a new client is exponentially more expensive than retaining an existing one. I’ve noticed that this problem is further aggravated by so many consulting leaders who have no idea what their client acquisition cost is. They fail to measure the resources and hours it takes to acquire a new client and, as a result, fail to make data-driven decisions on tweaking and optimizing the process over time.
- High cost of client onboarding: it is resource-demanding to get the project going with a new client. In the initial stages, it’s all about figuring out how many people to allocate towards a project, spending hours on introductory calls, mapping out the strategy, putting together the correct tech stack, etc.
- Lack of revenue predictability: making accurate revenue projections for firms that generate the most revenue from one-off projects and new clients is nearly impossible. Without such predictability of revenue, it’s much harder to plan out resources, staffing and make growth projections.
This, in turn, puts tremendous pressure on consulting owners and practice leaders. They always feel the need to “hustle” to win new business. They either underutilize their employees or overstretch them. They chase new opportunities and say yes to non-ideal clients, constantly stretching out the scope of offered services and driving the pricing down.
- Resource planning difficulties: a natural – and unfortunate – consequence of the lack of revenue predictability is the inability to plan out resource utilization efficiently. Consulting leaders and owners are never sure how many team members will be needed for the next quarter, whether it makes sense to renew contracts with vendors or put them on hold, which marketing collaterals to request, and so on.
- Quality of life erosion: the risks of hunting that I outlined here come at the high cost of diminished quality of life for everyone involved – consultancy owners, senior leaders, team leaders, entry-level consultants, and admin and support staff. The lack of predictability and stability creates a stressful environment all around.
There is rarely a happy middle – employees tend to get overworked or underutilized, making them wonder if their employment will be terminated. Consultancy owners always feel the need to be ON – looking for new opportunities, constantly trying to engage the network in search of projects, sending dozens of follow-ups on payment delays, and hundreds of other stress factors.
Balancing the farming-hunting practices
Client retention and acquisition are two essential practices; no firm can grow organically with only one.
So what is that magic ratio that consultancies should strive for? I am a big believer in the 70/30 ratio – 70% of revenue coming from existing clients retained over long periods and 30% from new clients, one-off projects, etc.
The 70/30 split that consultancies should strive for
I want to preface this part by saying that most consultancies will not achieve the precise 70/30 ratio.
Instead, this is the split that firms should aspire to and that high-performance consultancies come close to. It can be 75/25 one year, 60/40 another year, and 80/20 the following year. Such deviations are not a reason for concern.
If, on the other hand, these ratios change as 70/30 in Year 1, 80/20 in Year 2, 90/10 in Year 3, or the opposite – 50/50 in Year 1, 40/60 in Year 2, 30/70 in Year 3 – now THAT is a strong indicator that the consulting firm might be in trouble.
Why is 70/30 between farming and hunting the optimal ratio? Because it puts revenue stability first while leaving a significant portion for growth and expertise development.
In my experience in working with consultancy firms, this ratio allows firms to grow at a sustainable pace.
Avoiding the dangers of farming and hunting
Earlier in this post, I outlined the benefits and dangers of farming and hunting in consulting.
Now, I’d like to discuss how to minimize the dangers of creating business development and scalable business management strategies over time.
The most significant disadvantage of client acquisition is the unpredictability it adds to a consultancy’s pipeline.
Relying too heavily on new clients to generate revenue puts enormous pressure on consulting owners to constantly recruit new clients – I explained all that earlier.
Firms can counteract this risk by expanding the revenue generated by existing clients and reducing the revenue percentage of new clients to 30%.
Lowering the cost of client acquisition
I urge firms to examine their current practices closely regarding the high client acquisition cost. How much time does it take, on average, to recruit a new client? What is a marketing funnel typically like? How many people are involved in recent client acquisitions? What is the primary source of new clients?
“But Luk, client acquisition in consulting is not a precise science!” I’ve heard some variations of this statement more times than I can count.
And you know which firms this statement usually comes from? The ones that rely heavily on networking to recruit new clients. No wonder they do not know how to measure their business development efforts. What are the metrics to use?
Recommended reading: Relying On the Network Is A High-Risk Consulting Growth Strategy
On the other hand, high-performance consultancies have dozens of metrics to evaluate their business development efforts.
Their client acquisition is made primarily by establishing and growing their reputational footprint, and most of their marketing is done digitally.
They measure their readership, audience engagement, open and click-through rates, and other digital metrics. This, in turn, allows them to review the process and optimize it, significantly driving down client acquisition costs.
Among the essential KPIs that high-performance consultancies obsessively measure and track are win rates and deal closing times. They want to know precisely how long it takes to bring a new client on board, what the main objections are, how to address them before they even come up, how to decrease the number of back-and-forths required to close a deal, which types of prospects are most likely to convert, etc.
Avoiding the trap of client dependency
Regarding farming, consultancies can counteract the risk of client dependency and work devaluation by strategically evaluating long-term work potential and developing value-driven services that remain relevant over a long period.
I’ve seen many consultancies develop a dependency on a select few clients. Typically, these clients account for between 40% and 80% of revenue.
Because of the revenue importance, these firms feel like they have to cater to every request from these clients – irrespective of how much outside of the scope of the initial service offering it is.
I suggest consultancies incorporate a long-term work potential evaluation system into the client onboarding stage.
Is there enough scope of work with this new client to aim for a long-term partnership? Can the pain points be resolved in a single project, or do they require continuous maintenance?
Firms should not be afraid to let clients go when they see the downward projection in the partnership. They shouldn’t wait till they develop that revenue dependency when it becomes exponentially more challenging.
Furthermore, consultancies should re-think their service offering. Instead of trying to diversify their service portfolio horizontally, constantly expanding the scope of their expertise and competing on pricing, they should think of complementary services within the narrow scope of their expertise.
Some examples of such services that can be offered over a long period include:
- Audits: Conducting quarterly audits to ensure the client remains on the right path – after all, it’s cheaper for a client to address a problem the moment it occurs than try to fix it down the line when it spreads and multiplies.
- Training: Conducting regular training sessions for the latest hires will bring new employees up to speed on the processes, technologies, and practices of the client that the consultancy helped develop.
- Monitoring: Offering regular monitoring and insights – these can be exclusive reports or sessions that would bring the client up to speed on the trends and patterns the firm has observed over the last 6 months, the previous year, etc. Have competitors introduced new technologies that allowed them to reduce operational costs significantly? Are there regulatory developments brewing that risk negatively impacting the client’s business?
- Guidance: Providing C-level ‘over-the-shoulder’ guidance to give them peace of mind during critical transformations (with a subscription).
There are many other ways to vertically extend the service offering to protect market positioning – I offer various ideas in a separate post on the subject.
These service offerings should be designed to provide real value without expanding the scope of expertise – to the contrary, offering the firm an opportunity to deepen its expertise. This is what I witness high-performance consultancies do on repeat.
Securing the 70% sweet spot
So where should the journey of getting to the 70% sweet spot commence?
- Key account management: I recommend that consultancies begin by upping their account management game. Consulting leaders/owners and their teams alike should learn best practices for key account management and cross-selling. Key account management is a skill. It involves keeping your finger on the pulse of your clients' needs, priorities, and goals. This requires regular check-ins and continuous engagement via education. This is the only way to discover opportunities for deeper cooperation.
- High altitude of involvement: The most impactful client development and cross-selling happen at the C-level. Consultancies that want to develop long-term engagements with their clients should strive to develop trust and ongoing communication with the C-level. This is an opportunity to understand the biggest pain points of clients' business – what business goals they want to achieve and the macro problems they are facing on a daily basis.
- Multithreading: In order to infuse the relationships with clients with stability, consultancies should strive to connect deeply and broadly within the client organization. Why? Because people change jobs all the time. Establishing relations across an organization and showing the value of the consultancy's work across the board makes the account more stable in the event of a direct contact or champion changing roles or leaving the company altogether.
- Strategic service offering design: To be able to maintain clients past the initially contracted service, consultancies should re-imagine their service offering. As mentioned earlier, it's about designing services that do not push the boundaries of an existing expertise domain but rather deepen the value or provide complimentary benefits for clients within the same domain. The initial client engagement then becomes a trust-building exercise, where the consultancy proves its ability to deliver value and is able to successfully secure a long-term relationship with that client.
In conclusion
Running a consulting business can be overwhelming. I get that.
There is the constant pressure to be on top of things. Economic uncertainty doesn’t help.
However, consulting leaders should never let the stress and the pressure of managing and growing a consulting business create chaos in their approach.
Metrics, targets, and ratios allow consulting leaders to find their bearings amid uncertainty.
They enable consulting owners and partners to be deliberate in their farming and hunting efforts. They force consultancies never to lose sight of long-term goals.
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