how your net promoter score can help you focus.
by marc rosenberg
the rosenberg practice management library
we’ve discussed how there are four disciplines of cpa firm practice development. here is how firms commonly spend their time on each discipline, or marketing activity:
- discipline 1, grow and protect existing clients: 50%
- discipline 2, develop and nurture referral sources: 30%
- discipline 3, prospect to attract new clients: 15%
- discipline 4, perform support activities: 5%
more: the 4 marketing disciplines | 15 powerful niche marketing practices | 19 takeaways from the history of cpa firm practice development | why you have to kill the old paradigms | are you ready for the great disruption?
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let’s start by focusing on discipline 1, growing your existing clients.
the three sources of revenue growth
all internal revenue growth comes from three sources:
- existing clients 50-60%
- referral sources 25-30%
- prospecting/new clients 15-20%
these percentages are anecdotal, based on the experience of the authors as well as countless discussions with managing partners and nationally known marketing consultants over the past 20 years.
these percentages will vary from firm to firm. some firms tell us that they get most of their new clients from referral sources. that’s fine. firms must do what works best for them. but for those firms insisting that referral sources matter most, i would challenge them to ask if they have truly made an effort to exploit the potential of their existing clients. or perhaps the services they offer are so narrow that cross-selling opportunities are greatly limited.
existing clients. cpa firms have told us – forever! – that far and away the biggest source of their revenue growths is their existing client base, in two ways:
- expanded services. irs audit, estate planning, recruiting a controller, advice on acquiring companies, technology and many other services.
- referrals to other companies. there’s nothing better than having a client who is a raving cheerleader for you by referring their friends, business acquaintances and referral sources to you. these opportunities are almost always pre-sold!
referral sources. these are providers of professional services to your clients and prospects. they include attorneys, bankers, investment advisors and insurance agents. professionals are always looking to be the go-to person for their clients’ needs. if the need can’t be fulfilled by the professional, then he or she wants to be able to refer the client to someone who is highly skilled, experienced and reputable in the area of expertise sought. it’s a great feeling to be able to provide great service to your clients that is appreciated. it’s also a great feeling to refer clients to other providers and have them come back to you later and thank you profusely for making a great referral.
prospecting. trying to land new clients is typically the most difficult of the three types of growth to achieve. it is also by far the most expensive and time-consuming.
the loyalty effect and nps (net promoter score*)
* net promoter score is a registered trademark of satmetrix systems, inc., bain and company and fred reichheld, founder of bain’s loyalty practice.
today’s cpa routinely encounters fee pressure in the market. whether it is through a formal bid/proposal process, clients complaining about fees or simply a competitor engaging with an existing client of yours, there is no shortage of firms willing to do your work for less.
before simply matching fees or taking writeoffs, practitioners must first take stock of the state of their very best relationships. the pareto principle suggests that firms should focus their client service time and effort on the 20 percent of the clients who provide 80 percent of their revenue and profits. (there is no magic in 80-20. it could be 70-30 or 81-19 or somewhere in that ballpark.) these clients must be defended at all costs.
unfortunately, most firms fail to determine which of their clients are promoters, which passives and which detractors.
promoters. loyal enthusiasts who will buy more and recommend your firm to others.
passives. clients who appreciate what you do but see your services as a commodity they might trade for a competitor’s lower fees or more sparkling personality.
detractors. clients who are currently caught up in a disappointing relationship and are just waiting for someone to come along and make it easy for them to switch.
net promoter score™ (nps) is a system created by fred reichheld, based on the theory that clients who are truly pleased will recommend you to their business acquaintances, friends and colleagues. they also will be more receptive to hiring your firm for additional services.
using the nps system and compiling years of results of tgp’s online satisfaction and loyalty survey, you can measure the degree of loyalty among your best clients. this knowledge enables you to manage relationships that require additional or special attention.
once you know a client’s nps, you can ask followup questions that provide insight into what it will take to build a more effective and enduring relationship.
before we dive into the details of nps, it’s critical to understand why we are focusing on it so much. we stated earlier that the best source of new business is your existing client base, in the form of expanded services and referrals. however, in order to reap these benefits, clients must be very satisfied (not just ok) with the service and overall experience they are receiving from their cpa. unless a client is experiencing a high level of satisfaction she is unlikely to provide cross-selling and referral opportunities. so it behooves cpas to take all necessary steps to provide great service to their clients, especially their best clients. this is where the golden goose is located!
many cpa firms are hesitant to measure their clients’ satisfaction and loyalty. their reasoning goes something like this:
“i’ve had this client for many years. they hire us each year, pay their bills and are nice to deal with. this must mean they are satisfied with us. why upset the applecart by asking what they think of us?”
but every day, clients leave their cpa firm for reasons like these:
- inadequate service and lack of individual treatment is the most common reason. according to a survey by accounting today, this could mean the cpa was not proactive or unresponsive or lacked new ideas to help the clients’ business. a wall street journal survey found that disappointing service is the reason clients leave a professional 68 percent of the time.
- technical quality; disappointment with the results; a feeling that the professional lacked the necessary expertise were reasons clients left 15 percent of the time according to the wsj.
- fees are rarely a true factor for clients leaving, but they are often cited to avoid addressing the real reason: service. the wsj found that only 7 percent of clients leave because of fees.
- the firm doesn’t provide a wide enough array of services (not measured by the wsj poll, but we added this reason because it’s important).
most of the time it comes as a surprise to the cpa when the client leaves.
measuring the satisfaction and loyalty of your clients is a proactive tactic: wouldn’t you rather know how a client feels before you get notified that he or she has moved on? implementing a client survey system is the best way to keep a thumb on the pulse of your most important relationships.
how to calculate your nps
very simple. first, some basic terms:
n is the percentage of clients surveyed.
p is clients measured as promoters, expressed as a percentage of the total clients responding.
d is clients measured as detractors, expressed as a percentage of the total clients responding.
clients are asked a simple question: how likely is it that you would recommend our services to another business, friend or colleague? they are asked to respond to the question on a 0-10 scale, with 10 being extremely likely and 0 being not at all likely.
- p = those responding with a 9 or
- d = those responding 0-6
- ignore those responding 7-8.
final step: p – d = nps
examples of nps calculations, based on three hypothetical firms that each surveyed 80 clients. the formula is to take the p-percentage and subtract the d-percentage, with the result being the nps. ignore scores between 7-8.
now, because most of our readers are accountants, they will obviously want to know what kind of a grade these scores earn. we don’t have a detailed grading scale, but we can give you the following benchmarking data:
- on average, across all business sectors, the average nps in the u.s. is 16.
- as you might expect, professional service firms fare better, with an average nps of 57.
- tgp clients enjoy an average nps of 78. this is attributed to the fact that these firms have decided to focus diligently on discipline 1 activities, which drives a higher nps score.
high-impact recommendation for your firm: only 48 percent of business clients and 21 percent of individual clients report receiving a formal client satisfaction and loyalty survey from their cpa firm. what a great opportunity for an ambitious cpa firm!
so now you have your first assignment. conduct a client satisfaction and loyalty survey on your top 100-200 clients and determine an nps score for respondents.
the point of the nps exercise is not to simply do the math. it’s to develop a game plan for turning firms who rated you below 9 into active promoters by improving the service you provide to them.
here are suggestions for the conversation you need to have with your clients, depending on their nps score:
0-6: you are about to lose this client. you need to go into a client-saving mode. ask your client: “what can we do to move you to a 9-10?” if the client leaves, you don’t want them badmouthing your firm.
7-8: you can afford to be a little passive. thank the client for the 7-8 rating and ask, “what’s the one thing we can do to move you to a 9-10?”
9-10: “thank you! thank you! is there anything we can do for you?” this is a great time to ask for a referral.