Three Guidelines for the Composition of Your Client Base

Time to talk about clients. Not specific ones, though, but rather what an ideal client base looks like for a smallish, privately-held firm in the marketing field. I doubt that this would apply outside this field, so use with caution if you are a different type of firm.

Start by listing all your clients in a spreadsheet, from largest to smallest in descending order, like the illustration above. One very important note: if you have the data, list just the fee income from these clients. That’s what’s left after pulling out all the external cost of goods sold like media, printing, and contractors. Don’t pull out internal salaries as those are never properly categorized that way.

I’ve numbered the graphic to direct your eyes to what you might look for.

First, note the relative size of your largest client. If you are working for multiple departments or divisions of the same larger entity, they should be listed as a single source of work. For more on dealing with a client concentration issue, see the position paper here on "Qualifying Clients" (it's free).

You want that largest client to represent 15–25% of your total fee billings. Larger than that and most of the clients that follow will be too small to generate profit and to let you get deeply enough into their situation to move the needle on their behalf. Larger than that and your firm could also suffer harm when that much business is lost as the client moves on. But the larger the better as you nudge up against 25%.

Second, see how many clients (after that largest one) represent at least 4% of your billings. If you are getting all their work and it’s only 4% of your billings, chances are good that they are too small, but that’s not usually the case. Typically, there’s more work to be had if you do good work, as long as you are starting with a qualified client in the first place.

What we are looking for here is six or eight clients who each represent at least 4% of your fee billings. This enables you to grow them to a larger percentage of the whole, partly by managing the client/agency dynamic.

Our sample firm has seven clients that each qualify by representing at least 4% of the firm's total billings.

Third, how many clients make up that small “miscellaneous” category where you lump all the smallest clients together? Don’t worry too much about the relative percentage of each, but look instead at how many total clients make up that miscellaneous category of “too small to list” on the spreadsheet.

In this case you are looking for no more than ten clients and ideally three or four.

The exception to these numbers would be a development shop that has maintenance agreements with clients for whom you did a large prior project, in which case you’ll have fifty or more very small transactional maintenance clients. Otherwise, these guidelines apply to any firm up to around one hundred employees, regardless of focus.