As a strategic growth advisor for our clients at Model B — not to mention building a now-robust digital agency from the ground-up — I have the distinct pleasure of advising a variety of clients across multiple verticals. There’s nothing better than experience gained in the field, what they call “the school of hard knocks.” Working with these companies, the mission and the question is nearly always the same: how can we grow our revenues?
The answer is always the same: get more clients.
So how? Growing a professional services company is distinctly different from growing traction for an e-commerce or membership product. Rather than a quick purchase or sign-up, the goal is long term contracts that provide steady revenue to allow you to look forward and scale your business. Today we’ll start by understanding your Client Lifetime Value (CLV) so that you can get a rough estimate of a reasonable Client Acquisition Cost (CAC), which is the first step.
To get to this number, take your average monthly retainer and multiply it by the numbers of months you typically retain a client. For example:
- Average monthly retainer = $3,500
- Average number of months = 18
- 3,500 x 18 = $63,000 is your CLV
If your CLV is $63,000, you can now calculate a reasonable CAC. If the business is well-run and operating at a healthy margin, a reasonable number to soft circle would be $10,500, which is three months of your retainer or 16.6% of your CLV.
Now that that’s solved, all we have to do is take $10,500 to the New Client Vending Machine and, viola, new client!
If only it were that easy, right? It’s not. But fortunately, I’ve seen some things and built some things, and in my opinion there are only two sustainable ways for you to get to-market in a way that you can systematically control: build a sales machine, or build an advertising machine (or both). But first we’re going to pause and talk about your network.
An Aside: Founder Network Growth
A founder of a professional services company is almost always going to be able to build a solid book of business by tapping their network. People in your network know and trust you, and chances are higher-than-likely that you’re building a service around something you’ve done your whole life, so you’re already a known commodity. Tap your network. We’re talking coffee, happy hours, lunches, and grinding out a thousand LinkedIn messages. This activity, assuming it closes contracts (and it should), will help you to fund the tactics I outline below.
Sales + Advertising Machines
If you’ve ever received a call at your desk or on your mobile from a company seeking to solicit your services, it means you’re in the target market for a company who believes they have a service that will be valuable to you. Tech and SaaS companies are fantastic at these programs, and they consist of having a Business Development Representative (BDR) or Sales Development Representative (SDR) whose only job is to grind the phones all day.
You’re probably either thinking: “I’m not ready for that,” or “we just don’t do it that way.” I suggest that you throw these objections out and try it anyway. A great goal for someone working the phones is to set two meetings a day with clients in your prospective market. Once the meeting is set, bring in the founder or a solutions architect in your organization who knows the product front-to-back so they can communicate the value to the prospective client.
Let’s say they set those 10 meetings a week and you turn 5% of those meetings into clients: that’s 2 new clients a month at $63,000/year, or $1,512,000 in new revenue; if you bonus your BSR/SDR 10% and they have a $50,000 base compensation plan, that means you’ve spent $201,200, which comes out to a CAC of $8,383 per client, or 13.3% of your $63,000 CLV.
I know that’s a lot of math so let’s leave it there: with a Sales Machine you could potentially hit a 13.3% CAC, or a $8,383 investment per client with a $63,000 CLV.
If you’ve ever been browsing LinkedIn and you see an offer to join a webinar, download educational materials about your industry, or an offer to sign up for a demo or a consultation, congratulations, there’s a company out there who believes that you’re the right person to benefit from their product, so they’re advertising to you.
The logic of advertising is the most simple thing in the world: if people want your product, advertising will help you sell your product.
“But will it work for me?” Yes, if you have some traction in the market then advertising will get you more, with the added benefit of building a brand relationship and educating your target market even if your target audiences don’t immediately convert. And what I mean by convert is “sign up for your thing,” at which point you capture their email so you can reach out directly as well as putting them into your marketing funnel so they get regular email follow-ups.
Now let’s model the finances at the same $201,200/year you would spend to build your Sales Machine. I’ll use our math. And yes, if you didn’t think I was going to shamelessly plug myself after all this math you’ve got another thing coming. We model our pricing to include the media planning and strategy work, positioning your product through copywriting and creative, and then ultimately managing and iterating on your campaigns in the market.
At $201,200/year, at an average cost for a lead generated via digital advertising in the Business-to-Business professional services space, you could see as few as 40 leads at a higher capture cost, or as many as 250 at a lower capture cost. We’ll soft circle a nice round 100 leads per month. If 1 of 50 of those turn into clients, you’d close roughly the same number of clients a Sales Machine would: 24 new clients at a total of $1,512,000 in new revenue at a $63,000 CLV, at a CAC $8,383 per client, or 13.3% of your CLV.
Obviously I’ve modeled the math to be around market standards as well as typical benchmarks, and mileage always varies — you could have lower-than-expected call-to-conversion rates (in sales) or lower-than-expected click-to-conversion rates (in advertising). The point was to help illustrate the logic: both are great.
Using an advertising agency like ours for your advertising machine does have the added benefit of it being something you don’t have to manage, but sales machines are inherently valuable and also drive a return assuming you have the time to manage your team to their metrics.
Additionally, there are massive variables that can drive you either increased or decreased returns: do you know who your best verticals are? Do you know how to communicate your value prop, and is it something that people are budgeting for, or is it something you’ll need to educate them on? (Like the way I’m educating you on advertising, for example!) These variables apply to both tactics.
The Word “Machines”
I’m also using the word “machine” here because both of these tactics should be built and run as a machine. Peter Drucker loved to say that you can’t manage what you can’t measure: you must ensure that either, or both, of your machines are hitting their metrics, from average number of calls-to-meetings in sales to average number of clicks-to-conversions in advertising. The magic is in the math.
The Path Forward
I didn’t write this to tell you what to do to grow your company, I wrote this to shed light on the options. Whenever someone asks for my opinion I always point back to what I do, or what I’ve done, that’s seen success; in the case of this article, Model B deploys both tactics in the market, and we see success in both. So, why not both?
If you’re limited to just one based on your budget, my suggestion would be to make the choice that you’re most comfortable with — that you have the time to manage. You can outsource advertising with success (we’ve got a deep base of clients that will attest to that), so that’s likely going to be the easiest to manage.
If you’d like to read more about the logic behind a sales program, I highly suggest that you read Getting To Closed by Stephan Schiffman. If you’d like to read more about how to position your product through advertising, I’d suggest Ogilvy on Advertising. And if you want to chat further about whether advertising will work for you: email me, I’d love to chat.