One of the most talked about topics among CPA firms as it relates to marketing is “How much should we be spending?” National studies on CPA firm spending indicate that the range of spending for most CPA firms is somewhere between 2-3% of gross revenue. The latest Association of Accounting Marketing Study on CPA firm marketing budgets (conducted by Hinge), indicates the fastest organically growing CPA firms spend less on marketing than slower growing firms.[1]
While it seems counter-intuitive that low-growth firms are spending more, there are a number of factors that upon deeper consideration likely explain the finding. Here are four likely reasons:
1. High-growth firms know how to get a better return on their investment.
What dynamics are involved in getting a return on investment on marketing budget? Certainly the quality of the activities is important, but two other elements that carry more weight are having a solid “process” around the activity and effectively making the transition from a purely positioning activity (marketing) to an activity that ultimately generates revenue (sales).
High-growth firms understand that good business development activities are processes not events. This means thinking about what they need to do to plan and prepare for the activity, what behaviors and actions do they engage in during the implementation of the activity and afterward how do they continue to follow up, evaluate and track results. It sounds simple, but many firms jump into implementation without a solid understanding of the objective, without considering whether the target market matches the firm’s ideal client profile, or thinking through the messages that are compelling to the audience. They often don’t understand the longer-term follow up and nurturing that has to take place in order to convert prospects into clients.
The other element is proactively transitioning activities from marketing to sales. Marketing activities are typically designed to position the firm, establish the firm’s credibility as a resource and create awareness of the firm’s brand. They are typically pushed out to many target prospects at a time. Sales activities are designed to create opportunities for individuals in the firm to interact one-on-one (and usually in person) with prospects and begin to work the sales cycle—understanding needs, establishing a clear solution through the firm’s services, scoping the engagement, proposing and working through objections to close the deal. Marketing activities without some clear, planned event to transition to sales will result in marketing spending with little to show from a revenue standpoint as a result. Firms that are spending money on things like sponsorships, direct marketing, advertising, community involvement or even online marketing but are not engaged in activities that enable them to meet with prospects and understand their needs will experience a low return on investment—meaning less revenue generated and slower growth rates.
2. High-growth firms know that client service is a growth strategy.
More and more leading firms understand that one of the easiest, least expensive, most reliable ways to generate revenue is by creating processes and a culture in which everyone in the firm is charged with helping to identify other ways in which the firm can help clients. They are redefining client service from “whatever we need to do for clients during the course of the engagement” to “whatever we need to do for clients that will help them succeed”. It’s more than just semantics. Firms operating under the traditional definition compartmentalize client service into the process involved in getting the work done. Firms embracing the second definition are continually and proactively discovering the needs of their best clients by asking questions during and outside of the engagement. They are training everyone in the firm – from staff through partners – to play a role in that discovery and to collaborate on how the firm can help. They are teaching their people how to connect the way clients talk about their needs with the services the firm offers. They encourage professionals to be bold and creative in figuring out how the firm can address the challenge or embrace the opportunity. They are cultivating deep and trusting relationships with clients and are changing the model for client service to better align with the client service attributes their clients value most.
Much of the growth activity that results from a focus on client service can be achieved with relatively low out-of-pocket dollars. With the potential exception of outside trainers or consultants to help them through the process most of the heavy lifting is done by individuals in the firm. When firms really get it right, that activity can be included in the course of client service and becomes billable. Time investments (which may or may not be tracked as a line item in a firm’s marketing budget) generally yield higher close rates, more profitable work, and can often be billed at higher rates due to the existing relationship. This also contributes to improving client loyalty and maximizing the average useful lifespan of the client relationship – which makes growing the firm’s top-line easier due to having less revenue to replace year over year as a result of lost clients.
3. High-growth firms have more “time” invested in growth.
In this study, only out-of-pocket dollars and marketing professionals’ salaries were included in the marketing budget number. There are two other categories which, I suspect, if we looked at a comparison between firms would show high-growth firms as having larger numbers than low-growth firms. One is CPA professionals’ time. High-growth firms are likely to have more business development hours documented than low-growth firms. This includes not only the time per professional, but the number of professionals documenting business development time. These firms most likely have defined and communicated how everyone in the firm can and should contribute to growth based on his/her experience level—empowering all professionals to engage in growth activities vs relying on one or two rainmakers.
The other is training. Firms that are achieving high levels of growth embrace non-technical training as critical to a professional’s development. These soft skills such as relationship building, communication and needs assessment are critical elements in professionals becoming trusted advisors to their clients as well as becoming effective new business developers. Thus, the time and cost associated with training CPA professionals becomes important to getting a significant return on a firm’s investment in marketing.
4. High-growth firms leverage their marketing investments.
Assuming that the time spent by individuals is aligned with a firm’s investment in marketing spending, (i.e. focused on the same target markets, supporting events and associations where the firm is making investments, etc.) high-growth firms are leveraging all investments to accelerate growth. What’s fundamental to leverage? Defining specific target markets the firm serves, can serve well (with services other than compliance) and wants to serve – then aiming all the firm’s business development resources in that direction in a well thought, organized manner is the key to achieving growth in the most efficient way possible. This process ensures the firm is attracting and creating opportunities with A and high-level B clients as opposed to attracting a lot of C and D opportunities. The result? Higher rates of growth and more interesting work for professionals.
Marketing Spending does not Equate to Growth
Marketing spending is not the only indicator of a firm’s ability to grow. It’s a classic case of how throwing money at a problem isn’t necessarily the solution. That’s not to minimize the value of having a marketing budget. But critical to success is examining how the money is being spent and what other activity is going on inside the firm to support it.
Low-growth firms often think of marketing and sales as externally focused activities and may even unintentionally erode client service as they ramp up prospecting efforts trying to fill a short-term revenue need. Their clients become more vulnerable to competitors. This causes spikes in marketing spending and a reduction in effectiveness.
