Client Portfolio Basics: The Client Portfolio Concept (1 of 3)
10/17/08 at 2:20 PM by Frank Coker Overview
The term “client portfolio” gets used a lot, but the real power of the concept is usually lost. The portfolio concept is actually a very rich way to understand the value and opportunities in your existing list of clients. It takes time and effort to do a full portfolio evaluation but it can make a big difference in how you grow your revenues and your client base. This is especially true for VARs, MSPs, ISVs, solution providers and outsourced IT service providers that can benefit greatly from long-term relations with their clients.
Most small companies are “opportunistic” in their approach to finding new clients, simply taking what ever comes along. They may have thought about the type of clients they consider to be most ideal, but rarely do they build a game plan around target numbers of clients with certain characteristics and revenue goals. The portfolio approach to managing your business turns this around and makes business development much more intentional and less accidental.
The Portfolio Concept
The portfolio concept has been around for many years but is most often found in larger companies. There is plenty of market research showing the financial benefit of portfolio management, but there has been little effort to make these concepts useable for small IT service companies. Even small companies with a portfolio of 25 or more clients can benefit from the basic concepts of portfolio balance, diversification, and a planned blend of risk and reward.
It has been our experience that smaller IT service companies can use these concepts and get major financial benefit. We have seen IT service companies double and quadruple their monthly service revenues in 12 to 24 months. It’s simply a matter of understanding what changes need to be made to your existing portfolio and then setting goals for achieving a defined balance across the portfolio. Key to portfolio planning is knowing what kind of clients and what kind of work maximizes your profit and at the same time creates a balanced workload that your team (employees and contractors) is capable of servicing.
CoreConnex has a proprietary portfolio analysis tool that it makes available to customers to speed up the process and to assist in creating models for increasing revenues. It takes the portfolio process up a notch from the introductory concepts presented in this blog, but the ideas are consistent. The following discussion has been simplified so that the basic concepts can be explained. As with any detailed analysis, it’s always easier to do if you have a structured tool.
Drill Down
So let’s drill into the portfolio concept a little deeper. First, a client portfolio in its simplest form is just your list of clients broken into categories and groups within categories. For example, categories might be client size, client revenue, and client IT complexity. Groups in each category would be a break-down of the category such as large, medium, small and micro, or perhaps high, medium, low and none. Then you define a numerical range to each group making sure that you have at least one of your clients in the top group in each category. These numerical ranges could be dollars, employee counts, scores for complexity, etc.
The next step is to assign all your clients to a group within each category and count total clients per group, compute dollar averages per group and calculate averages per group. This will result in a numerical picture of the basic performance averages for each group in each category. For example, statistics could show (1) the percent of your clients in each group with a category, (2) the revenue being generated by each group and (3) the direct costs and overheads attributed to each group. This starts to show you where revenues are coming from and which groups generate the most profit.
Portfolio analysis is not a difficult process but takes time to build and maintain. But the end result can lead to much greater precision in goal setting and overall business development.
Continuation
We will be writing additional articles in the months ahead on the topic of portfolio analysis. To take the portfolio concept to the next step read Tony Lael’s blog Analyze Your Client Portfolio. We will be publishing another blog showing how to approach your clients once you have analyzed your current portfolio – stay tuned!