CoreConnex | Industry Trends for VAR, MSP or IT Service Providers | Business Systems for IT Service Companies

Why should I analyze my client list?
Part 1 in this series, Portfolio Basics: The Client Portfolio Concept, introduced the concept of managing your clients as a portfolio. This is a way to understand the value and opportunities in the list of clients you currently serve. The goal of managing your clients as a portfolio has several benefits, but this blog will deal with the biggest – growing revenues. Interestingly enough, most IT service companies agree it is easier to grow revenue with existing clients than it is to find new clients. Finding new clients is important for growth, but our research has shown that most IT service companies have significant untapped potential in their existing client base which can show results much quicker and easier and at a lower cost than could a sales compaign for new clients.

It is not uncommon for VARs, MSPs, ISVs and outsourced IT service companies to see as much as 120% – 350% revenue growth in the first 8-18 months after first implementing a portfolio-based plan to mine their current client portfolio.

This is growth we have witnessed in existing client bases without adding a single new client. We have seen this growth as a result of following the CoreConnex prescribed portfolio management process and using our proprietary portfolio analysis and planning tool. We make this tool available to our customers to dramatically speed up the process and to assist in creating a model for growth. We are not the only advocate of portfolio management concepts, but, to our knowledge we are the only one that has built a portfolio methodology specific to IT services. Regardless of who you tap into for assistance, the real question is: How can you create a portfolio-based growth model for your IT service company?

First, in order to get a clear picture of your existing portfolio you must analyze your current client list using several different measures. Once you have a clear picture of your portfolio it will be much easier to see where specific changes are needed and to set specific goals for maximizing the financial performance of your portfolio. There are 7 common categories to analyze.

1. Industry – helps start to uncover vertical markets you may be servicing
2. Technology supported – number and type of devices you support always influences how you support your clients
3. Technology utilization ratings – complexity of technology use, views on use and a general business growth rate
4. Revenue – average monthly billings over the last 24 months in the months you have billed the client
5. Time – average monthly time logged over the last 24 months in the months you have logged time for the client
6. Billing trends – the number of months out of the last 24 months you have billed them
7. Risk factors – do you track elements of their business plans, do you store sensitive client information like credit card or password information, are they under contract for services and how do they depend on the use of technology.

The information you need to get from your analysis has two parts, 1) the breakdown of revenue yield into quartiles and 2) the risk breakdown of each quartile. The end result should show you how the top 25%, upper-middle 25%, lower-middle 25% and bottom 25% of your portfolio are contributing to your revenues and exposing your business to risk.

For each quartile you need to see how many clients are contributing to revenues, the percentage of your clients in each quartile and the monthly revenues generated by each quartile. This gives you a picture into how your portfolio is currently balanced.

In this example you will notice that the majority of revenue is coming from the bottom quartile. Rebalancing this portfolio so that a larger portion of revenue was coming from higher yielding quartiles would have a dramatic impact to revenues without adding any new clients.

High risk, but low yielding clients are the most dangerous to have in your portfolio because you are taking on risk that you are not getting paid for. Low risk, high yielding clients can sometimes be equally as dangerous because this may indicate you are not providing enough value to them and they could be easily taken away by a competitor. High risk, but high yield clients are ok, but may indicate you need to renegotiate a contract that reflects the high risk. The important thing is to manage risk and reward across your portfolio.

Once you have performed your analysis you should identify which clients need to move into different quartiles, set new revenue goals based on a balanced portfolio and plan a communications campaign with those clients you would like to see move into different quartiles of your portfolio. I will be covering this in more detail in my next blog in this series.

You should repeat the portfolio analysis process on a quarterly basis to track progress toward defined goals for revenue, types of clients, industries served and other specific business development goals. This kind of management precision can profoundly reshape a company and can lead to new levels of business performance that generally cannot be imagined without this kind of analysis.

We would like to hear about your experience and observations as you move forward with portfolio management processes. Please email us or post a comment to this article – feedback will be appreciated by all. Watch for our next blog when we tackle how to rebalance your portfolio to get immediate returns.