Understanding Good, Neutral, and Bad Revenue in Professional Service Firms

As the founder of a boutique professional service firm, you understand the importance of growth. But not all revenue is equal. In our quest for growth, it’s crucial to distinguish between good, neutral, and bad revenue – and align our sales compensation accordingly. This approach not only accelerates growth but ensures it’s sustainable and aligned with our core values and business goals.

Good Revenue: The Lifeblood of Your Firm

Good revenue is the kind that comes from clients who fit your firm’s Ideal Client Profile (ICP). These clients are not just profitable; they resonate with your firm’s expertise and values. They are the clients who appreciate your unique offerings and are willing to pay a premium for them. This type of revenue contributes to the long-term health and growth of your firm.

Neutral Revenue: The Opportunistic Capital

Neutral revenue comes from clients who don’t perfectly fit your ICP but still bring in working capital. This revenue is opportunistic and can support your firm during growth phases. However, it’s important not to lose focus on your ICP while dealing with such clients.

Bad Revenue: The Hidden Cost

Bad revenue, the most insidious of all, comes from clients who fall far outside your ICP. This type of revenue can be detrimental as it diverts your firm’s resources, focus, and energy from more aligned opportunities. It can lead to mission drift, employee dissatisfaction, and even damage your brand.

Aligning Sales Compensation

Now, let’s talk sales compensation design. Your sales team is the frontline in attracting and securing revenue. Their compensation should be strategically aligned with the kind of revenue they bring in.

1. 1. Rewarding Good Revenue

Salespeople should be incentivized to pursue and close deals with ICP-aligned clients. Consider paying a premium for good revenue. This can be in the form of higher commissions, bonuses, or SPIFFS. This not only motivates your team to focus on high-quality leads but also aligns their efforts with the firm’s strategic objectives.

1. 2. Neutral Revenue Compensation

For neutral revenue, stick to the standard rate of compensation. This acknowledges the effort put in by the sales team while subtly nudging them towards more ICP-aligned prospects.

1. 3. Discouraging Bad Revenue

Do not compensate sales for bad revenue. This might sound harsh, but it sends a clear message about the firm’s priorities. It’s crucial to communicate why certain clients are considered ‘bad’ for the business so your sales team understands the rationale behind this policy.

Conclusion

In a boutique professional service firm, growth is not just about increasing numbers; it’s about growing right. By aligning your sales compensation with your firm’s ideal client profile, you not only incentivize your team to bring in the most beneficial clients but also ensure that your firm stays true to its vision and values.

Remember, the goal is sustainable growth, and that comes from understanding and valuing the quality of revenue, not just the quantity.

Ideal client profiles and sales compensation are but only two topics discussed by members of Collective. If you think you might want to learn from your peers, consider joining Collective 54. You can apply here.