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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!
Phone: (707) 769-0965 Twitter @ronaldbaker
Versage website/blogwww.verasage.com