Design Business by the Numbers: The 80/20 Rule of New Business Development
March 18, 2013
This is a post in an occasional series I'll be running on ChangeOrder about the benchmarks that design businesses use to help maintain their long-term success. These benchmarks are drawn from the research that I did when writing Success by Design: The Essential Business Reference for Designers.
Do you track how many of your clients come back and work with you again? I hope so. Ideally, 80% of all new business should be repeat business. It should come from your existing clients that you're working with right now, or clients that are returning to you after a successful project in the past. This is the 80/20 rule of new business development. You should aim for an 80% retention rate for existing clients, and diversify your client base with 20% new clients and projects.
I'm not suggesting, however, that 80% of your retained client work is coming from a single source. Many design studios will end up being extremely successful with a single client, and without paying attention that client will command fifty to eighty percent of the studio's portfolio of business. (At this point, the studio needs to diversify and find new clients to help reduce their dependency on that single relationship.)
The 80/20 rule is a hard benchmark for a service business to meet, for a number of reasons:
The studio isn't tracking client retention—or retention isn't even a focus. Some design studios are so focused on getting the work or fulfilling the work that client retention is an afterthought. Just beginning to keep a metric of how many clients are retained year-over-year can send a strong message to both studio employees and studio leadership about how important it is to provide great design work AND a great client experience.
The studio isn't seeking out long-term fit when landing new business. A common reason studios don't hit the 80% retention target has to do with how they initiate relationships with any new client. Design studios in general need to put more diligence into vetting client fit when pursuing and winning project work. When submitting a proposal for any potential studio project, you should be looking closely at what long-term potential there is in working with that client.
The studio isn't providing solid client services alongside the work. If you're doing killer creative work, but every deliverable review with your client feels like another round of The Hunger Games, you're not going to build relationships that last outside of your projects and lead to future work. (This should be obvious, but I'm continually surprised to meet designers that harbor an us versus them mentality regarding how you collaborate on a client project.)
The studio isn't staying in touch and directly asking for future work.This may seem like a duh. If a project goes well for a client, you shouldn't be afraid to ask if there are any other potential opportunities to work with them in the future. You should also plan to regularly contact them just to stay in touch. It's possible that if they go to another company, they may be able to bring you business from that company. Keep in touch, and there's a higher likelihood you could start a conversation around a future project.
The studio's work isn't strong enough to stand up to competitors. Usually, we lose clients because of poor client service or project management. But if you start slacking in the quality of work that you deliver across a few projects, you can risk losing the relationship. Take a hard look at what you're delivering, and maintain the quality.
Keep in mind that not every project needs to be about the long term. Truly great projects come along all the time where we do great work, we have a satisfied client, we put the work in our portfolio, and we move on. But be aware that your studio becomes more efficient when securing new projects from return clients. Plus, working with the same clients can help contribute to the profitability of future projects, if they are managed effectively.
Other posts in this series include: