Let’s talk about a very important business concept: Lifetime Customer Value (LCV).
What exactly is LCV? Quite simply, it’s the amount of money you can expect a single customer to spend with you over the entire life of their business relationship with you.
Quick tax return example: A customer with a simple 1040 return comes to you every year, and you charge them $200. If they come back year and year, and you never raise your rates (which you should, by the way!), then this customer is worth $2,000 over the course of a decade….$6,000 over the course of 30 years in tax practice.
Instead of looking at a customer in terms of a single transaction, LCV as a concept forces you to look at each of your clients as a long-term business ally. On a balance sheet, your client list should literally exist as the single most valuable asset in your entire tax practice.
Most tax practitioners I speak with think largely in terms of either their seasonal tax customer base, or their monthly accounting clients. Most tax professionals do absolutely nothing to foster long-term relationships with their clients, and simply view them as a tax return that walks through the door once a year.
There are a number of problems with this thought process.
First of all, if you view each client as “just a tax return”, then you are obviously caring more about yourself than your client, and this is just a bad business mentality. Legendary sales trainer (never forget, you *ARE* a salesman, no matter what the initials after your name say) Zig Ziglar is quoted as saying, “You will get all you want in life if you help enough other people get what they want.” What Zig is saying here is that if you look out for your clients, they will reward you financially.
Second, if you only think about any particular client in terms of doing their tax return once a year, or doing their books once a month, or handling their payroll every two weeks, you are missing out on a MASSIVE opportunity to be of greater VALUE to your customers. You are in a position to offer money saving tax advice to your customers and prospects. If you aren’t doing this already, then why not? Do you do mid-year or quarterly reviews for your clients to discover new tax savings? Are your monthly accounting customers spending too much elsewhere to have their payroll processed? Would your 1120 and 1065 return customers be able to make better business decisions and better allocate their financial resources if they were looking at updated financial statements monthly or quarterly, instead of just seeing annual totals at tax time?
Always be thinking about what other services you could offer your clients. This not only makes you more valuable to them and solidifies the long-term customer relationship you build, but also adds to your own bottom line. If your clients are spending money at one firm for accounting, another firm for tax prep, and yet another firm for payroll service, you should really start asking yourself why that is. Even if you don’t perform these services in-house, you should at least be managing and coordinating these services on behalf of your client, as a convenience to them, which also builds your value to them.
Third, your client interactions should not be once a year. Tax practitioners that see their clients only once a year are at far greater risk of losing clients to competitors, computer software, their new brother-in-law, etc. It costs a substantial amount of money to obtain a new client, and you should therefore fiercely protect the clients you get. Metaphor time: Think of your clientele as a flock of sheep, and you’re the shepherd. If you lose a sheep from the flock, you lose far more than just a $200 tax return next year. You lose thousands upon thousands of dollars that are represented by the LCV of that client.
There are active means by which you can cultivate these long-term client relationships and maximize LCV. The single biggest key to doing this is maintaining regular communication with your clients throughout the year. Holding seminars, workshops, sending out a monthly newsletter, having clients physically come in for mid-year tax planning reviews, etc., are all ways to keep in touch with clients year round, and introduce them to additional service offerings that not only helps them, but also helps you.
In future posts, I’ll talk more about specific things to do to increase LCV, prevent clients from going to competitors, and how to select and nurture groups of new prospects using the same methods and convert them to paying clients.