Achieve Profitability by Choosing the Right Clients
Does our company have the right clients, and does it pick the right projects? AEC company owners and management teams don’t ask these questions as often as they should. Experience has shown how the same client and projects can be profitable for one company yet unprofitable for another.
Client and profitability can go hand in hand
Decisions leading to poor project profitability take place before the project begins. There is a vast array of possible ways things can go awry, and having an incompatible client is a one of them.
I know a contractor who collects all sorts of data from a large number of residential building projects. A researcher once analyzed the data and came to the conclusion that two main factors seemed to explain differences in profitability: the client and the choice of the construction manager(s). The contractor could identify one client whose projects invariably were very unprofitable.
Consider the client while bidding
How do building contractors select projects on which to bid? I have surveyed this issue recently and found similar selection criteria among the study group members. They look at the project’s size and timing but also at the complexity of the design. They also pay attention to the client and the client’s project managers. A client organization for some contractors is a “key client,” while other contractors find this same client considerably less attractive.
Even if companies don’t explicitly talk in portfolio terms, companies do use the concepts of risk, reward, and investment when selecting a project. A risk could result in an undesirable outcome but also an opportunity. Whether a client is an opportunity or a liability in the company’s eyes depends on several factors. In addition to rational and measurable factors, previous experiences and the overall reputation of the client affect decision makers.
Being similar makes a big difference
One of the factors that explains client preference is how well the client’s aspirations coincide with those of the supplier. The supplier and the client should possess the same maturity level when it comes to processes and practices.
Personal experiences and personalities have a surprisingly big impact on how companies do business with each other. Sometimes having the “wrong” person, such as a client’s project manager, can be a decisive factor when a company decides not to bid. The same applies the other way round. For instance, sometimes a client insists on a certain project manger from the supplier’s organization because that manager has a track record of getting along with the client.
Methods and tools for smart decisions
What clients and projects should your pursue? It depends on your company’s strategy and on your capabilities to serve the particular client in a particular project. What you need is a method and process for making smart decisions. Two practical management tools can help: the client relationship portfolio and the client relationship management plan.
A client relationship portfolio contains all the existing and potential clients of the company evaluated against the company-specific criteria. The criteria measure the strategic fit of the customer relationship: customer needs versus your services, customer relationship profitability, the potential for cross selling, and so on.
The relationship management plan (see Figure) describes the business potential of key clients or client groups and how the company would utilize that potential. The manager responsible for the client or client segment will create and update the plan regularly.
I’ve helped AEC firms devise client portfolios and relationship management plans. I’ll explain the use of these methods in coming blog posts.