Royal Pains, the USA Network television show, stars Mark Feuerstein as Hank Lawson, a concierge doctor with a small wealthy clientele in the Hamptons. He makes his living primarily attending to a small number of rich people. On a very busy day, you might ask yourself: “How can I get a job like that?”
The Case for Few Clients
Human nature is a funny thing. We want what we can’t have. A wealthy property developer once remarked: “My cardiologist is so good, I can never get in to see him.” Exclusivity sells because people want the best, especially if it’s something in short supply.
Financial advisors sometimes remark: “I only do business with people I like.” This is wrong on two levels. First, business is not a popularity contest. Second, a person might be odious and rich, but if they are willing to pay your fees without complaint, they can still be a good client.
What are the advantages of working with few clients?
1. Plenty of business. The right client owns a business requiring tax work. He needs to file personal tax returns. He likely has a foundation, trusts, or other entities requiring attention. He needs financial and estate planning.
2. Family relationships. Ultra-high-net-worth individuals often have a family office. You work for the children and extended family. Marriages and births bring more people into the fold.
3. Prospecting is not a priority. Your business model is “Being all things to some people.” Successive generations of the family provide your stream of clients.
4. Stable revenue stream. You are on retainer or have an agreed fee structure. Your clients are with you for the long term.
5. You can have more free time. It takes less time to deliver excellent service to a few people, compared to being responsible for a large group of people.
6. Go deeper. You can help clients solve many problems they don’t often associate with your profession or personal expertise. You have the time to get to know them, earn their trust, and get them talking about serious issues.
7. Specialize. Your clients might each own their own medical practices. Over the years, you have become very familiar with their unique issues. You are an expert in the field. Medicine has specialties. When a doctor needs the type of service you provide, he or she will likely ask around for a specialist.
8. Association. You don’t talk about your clients. They may talk about you. Word gets around that you have an exclusive clientele.
What are the disadvantages?
1. Loss of a client. If a major client dies or leaves, it can take a long time to bring a replacement relationship on board.
2. Next generation. In 1988, General Motors created the ad campaign “It’s not your father’s Oldsmobile.” After inheriting, the next generation often looks for new accountants or advisors.
3. Keeping them happy. Relationships take work. It’s true in marriage and business.
4. Price negotiation. It’s been said Ikea asks its suppliers to reduce prices over time on the assumption they have developed manufacturing efficiencies. These savings are passed on to customers. Clients do that, too.
5. Association. If your client is arrested or indicted and his financial records become public information, you may be associated with his activities.
The Case for Many Clients
It’s been said when Kemmons Wilson founded the Holiday Inn motel chain in the early 1950s, friends asked why he chose not to establish a luxury brand, but to market to the general public instead. He answered, “Because the good Lord made more of them.”
There are advantages to having a broad customer base:
1. Standardization of service. Everyone knows exactly what you do. You provide a very specific service.
2. Many sources of revenue. Clients die, and clients move. Each client represents a small portion of your overall revenue. It’s easier to replace smaller clients than larger clients.
3. Referral potential. People know other people. If you do a good job, they will tell others. They will help do your marketing.
4. Brand recognition. If you have many clients, by definition, many people know what you do.
5. Keeping costs down. Thanks to technology, you can benefit from economies of scale. These savings can be passed along to clients, keeping your costs competitive.
There are disadvantages, too:
1.Time intensive. Everyone wants to feel they are an important client. It takes a lot of time to be responsive to client requests.
2. Price competition. If you provide a general, standardized service, you will be competing with many others. One of the best ways for a new entrant to gain market share is competing on price. The wireless phone industry is a good example.
3. Fickle customers. Some clients shop exclusively on price. They want minimum service at the cheapest price. They aren’t loyal if a cheaper offer comes along.
4. Need to constantly market. You must keep the prospect pipeline filled. You will need to devote time and money to marketing.
5. Low revenue per client. The model works on volume because the income per client is small. You always need lots of clients.
Being exclusive is nice work if you can get it. Many professionals try to build a hybrid model catering to both ends of the spectrum. Most airplanes have first-class and coach seating.
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.