If obtaining new clients is a top area of focus for your firm, you’re not alone.
According to the 2015 PCPS CPA Firm Top Issues Survey, bringing in new clients is an issue for firms of all sizes. As firms look for sources of new revenue, many consider strategies successfully implemented by other firms. And the formation of niches – industry or service line specialties – is a tactic at the top of the list.
Implementing a niche strategy is one way firms can differentiate themselves from their competition. While it’s difficult for one firm to claim it does better work than the CPA firm down the street, it can say it has an area of expertise the competition doesn’t. Firms with niches bring something extra to the businesses they serve. They can translate sound experience into better advice; hence, specialization demands a higher fee than compliance work.
Analyzing Your Strengths
If you want to find new clients, make sure you know where they are. Before implementing a niche strategy, first research your firm’s internal strengths, market potential and potential competition.
Start by segmenting your revenue. Break out every dollar by service line and industry. For example, look at the total revenue generated within a specific industry like manufacturing. How many dollars do you generate from tax services for manufacturers? Accounting? Audit? Be as specific as you can with the services you are measuring. Calculate the percentage of revenue each industry or service line represents, too. Use this data to begin narrowing down the potential areas you may want to consider developing into a niche.
Spend time looking at each of your competitors, too. Determine their areas of strengths so you can focus on an area they don’t. You can gather this information from personal knowledge, their website and conversations with people who know them, like mutual referral sources.
Market potential is also hugely important. Let’s say you have 75 manufacturing clients. That’s a great start. But how many other manufacturers are in your marketplace? If there are only 25 more, the potential return may not be worth your investment. If there are 5,000, your revenue potential is greater.
Selecting a Leader
After you decide what specialty areas you want to actively market and grow, you need to select the right leader. Often, you think of the person with the strongest technical skills to fill this position. However, that’s not a significant criteria in selecting a leader.
The niche leader should first and foremost be a leader – a strong businessperson who is willing to put the firm’s interest ahead of her own. A strategic thinker. A decision-maker. Someone who can revise strategy when needed. It’s important that the leader recognize he is running a business within a business and be passionate about that niche.
Don’t be afraid to look outside your partner group. The best leader may be an up-and-coming manager with the drive to succeed. Some firms also look to lateral hires to bring the expertise in-house.
Researching the Market
Task your new leader with further examining the marketplace. Encourage him to study the revenue that makes up the niche. What is your average transaction size? How many services do your manufacturing clients purchase from you, and what are they? And how do you differ from other CPA firms?
Your new leader must talk to as many people as possible in the niche area – clients, potential clients, referral sources, thought leaders and even competitors – to find out more. Ask about the issues they face, what publications they read and what associations they belong to. Use this information to formulate your strategy. What are the specific product offerings you are going to sell to whom? And what is your channel of distribution to get the offerings to your targets?
The leader must conduct this research continuously to keeping his finger on the pulse of what’s happening.
Developing a Strategy
Use this market intelligence to develop a business plan. The plan needs to start with a solid definition of the niche – what’s part of it and what isn’t, what you’re selling and who’s buying. Analyze the staff needed to work in the niche, highlighting specific skills and training needed, then develop an organizational chart to define roles and responsibilities.
In addition to a solid marketing plan that details where new business is coming from and how you’ll get it, spell out specific objectives that the team needs to achieve. Assign responsibility to a member of the niche team, identify a timeline for completion and note any specific budget dollars needed.
It’s also important to include financials in the plan, including projected revenue, direct costs and capital needs. Also empower your leader to think about potential joint ventures and acquisition targets that can help strengthen the niche and spell them out in the plan, too.
Most CPA firms struggle with accountability, and niche areas are no exception. An effective accountability program will help ensure your leader is focusing on the things that truly drive growth.
For many firms this includes analyzing their current compensation program. Compensation should measure and reward performance that is consistent with firm goals. Let it drive the partner behavior needed for niche growth.
Firms decide to implement a niche strategy to grow, but that growth won’t happen from day one. As you develop a niche, measure intermediate progress to ensure you’re on the right track.
Early on, niche leaders need to focus on executing the business plan, speaking and writing about the issues your targets face and defining current and new service offerings. These are instrumental steps in niche development. Stick with it and over time these activities will translate into new business for the firm.
In addition to the revenue generated, you should see an increase in the number of clients in the niche, the average transaction size and the number of services sold – all without sacrificing profitability.
Build niches as a way to drive new revenue for your firm, but realize this will create a huge cultural shift. It won’t be easy, but a focused effort will position your firm to repeat benefits for your future.
This is an updated version of an article that originally appeared in the May 2012 issue of “Voices.”