21 Jan Can You Make Too Much Money?
Can You Make Too Much Money?
Talk about a loaded question! How much is too much? How would we know? How will our client know?
Let’s revisit Revelation X™ again. Last week we talked about the red line (the “Problem” line) and its role in closing the “Value Gap”. Well, there’s only one other line that creates the “Value Gap” and, of course, that’s the green line (the Fee / Profit) line. Whenever the green line goes up, value will decline, unless there is a commensurate quality improvement that is real and recognized.
So, how do we know when we’re making too much? We submit that there are two primary ways – one is visceral and one is formulaic.
The visceral indicator is that, if you are experienced and attentive, you purely and simply feel it in your gut. You know – and the longer that feeling persists, the more professionally restless and sleepless you become. Tums® won’t help.
The formulaic indicator is expressed in detail in our second book, “Why Good Clients Fire Great Companies”. We’re making too much when our income exceeds “What the Contract is Worth”, which is expressed in the exhibit below:
Once we know we’re making more than the contract is worth, we need to ask ourselves some hard questions. How we answer them will very likely determine if we will retain the client (and the client’s trust):
Q: Why do we allow ourselves to make more than the contract is worth?
A: Because we have other contracts where, for whatever reason, we’re making less.
Q: Do we need to give this money back to the client?
A: Yes, because it’s really not our money. The reason it’s not ours is because, sooner or later, we will give it back. Our only choice is how. We will either return it:
Proactively, i.e. capping our fees and investing the overage in specific barriers to contract exit and competitive entry, or …
Reactively, i.e. agreeing to match the legitimate tender of a competent competitor who is readily able to provide comparable service levels for significantly less.
Q: What happens if we choose the later, i.e., wait and react?
A: We’re mortally wounded because we’ve irretrievably breached the client’s trust. The instant we offer to match the competitor’s price, our client is entirely justified in asking, “Just exactly how long have you guys been in my pocket?” Now would be a good time to start packing.
Understanding the profound implications of Revelation X and the disciplined process of assessing our status and vulnerabilities, then creating specific plans to strengthen our position, is indeed, extraordinarily high-level strategic account management.
Q: Should we be doing this kind of in depth analysis for all of our accounts?
A: It reminds me of the answer to the question dentists give about flossing – only floss the teeth that you really want to keep.
Good clients really do fire great companies over this. The worst hits usually come from the blind side.
John & Steve