One of the tools we use when onboarding a new client is something we call the ‘5-Year Revenue Review.’ It’s a report that your accounting team can easily provide: Revenue by Client by Year for the past 5 years. And what you can learn from it is interesting and eye-opening.
Many business leaders regularly look at revenue year-to-date and compare it to last-year-to-date. And that’s fine. That trouble is that even if there’s overall growth, it may be hiding problems lurking beneath the surface. But when look at a 5-year report, you’ll see gaps and trends in the data that a 2-year analysis can’t reveal.
So, here are some of the analyses I look at with the 5-year review:
Initially, it shows the number of clients you work with each year and the average revenue per client (which way are these trending?)… as well as the number of years (out of 5) that your clients have done business with you.
Next, I’ll sort largest-to-smallest (for the 5-year total) and compare it to the old ‘20/80 rule.’ That is, that 20% of your clients account for 80% of your revenue. It’s an easy way to see if you’re a little ‘top heavy’ (with too few clients accounting for too much revenue… or if you have good client diversity). Spoiler Alert: The vast majority of small-to-mid-size MR firms are top heavy, which isn’t necessarily a bad thing… until one of them decides to leave.
The last – and, arguably, most important – analysis I do is ‘churn!’ That is, what percentage of your clients from 2020 did not return in ‘21… what percentage from ‘21 didn’t come back in ‘22 and so on.
Often, the churn issue is hidden because it’s covered up by the addition of new clients. And new clients are great – but with a high churn rate, new clients are just filling in what you’ve lost, not necessarily helping you grow.
We’ve done enough of these analyses now – over the past 10+ years – that we can confidently say that churn is an issue for virtually all MR agencies. In fact, 25-40% churn, year over year, is pretty commonplace.
When it comes to growth, your first priority should ALWAYS be to “keep what you got”… to maintain and grow your existing client base… to minimize (or eliminate) churn. Then, with your core business secure, you can worry about bringing on new clients.
Good luck and good selling.
In our next blog post, we’ll talk about the 3 primary reasons for the churn… that is, why you lose those clients in the first place (hint: it’s not what you think).
Want to learn more about minimizing churn, along with other key sales strategies and tactics? Join us this coming August for the Seller-Doer Workshop™, a training program developed specifically for business owners, senior leaders or managers or subject matter experts in small-to-mid-size market research firm who also have the added responsibility of business development. Learn more at www.SellerDoerWorkshop.com.