In my previous article, I described why clients hire new CPA firms.  However, growing a successful CPA firm also involves establishing a strong relationship with existing clients.  Strong ties with clients increase the likelihood of recurring engagements, as well as new projects.

In addition to the obvious benefits to CPA firms, clients also benefit from long-term relationships.  Due to the complexity associated with many services provided by CPA firms, switching from one firm to another can cause disruptions to a company's operations.  A new audit firm, for example, will not be as familiar with the client's business.  As a result, more time may be needed to interact with a client's employees in order to complete the audit.  This can adversely impact the productivity of workers at the company, as well as workers' morale.  Therefore, clients are not eager to change CPA firms if at all possible.
 
How can CPA firms strengthen their relationships with clients?  Are there marketing actions firms can take that are more cost effective than others in terms of client retention?  CPA firms have limited resources, so they must invest in activities that maximize the return on their marketing investment.
 
Texas A&M Professor, Leonard Berry, a well-known expert in the area, suggests there are three types of bonds that play a role in client retention:  financial, social and structural.  Below I will describe the bonds, and discuss the effectiveness of investing marketing resources to strengthen these bonds.  Are certain types of bonds more important than others in retaining clients?  The answer to this question is important for CPAs in order to effectively allocate their limited marketing resources.

Financial Bonds

One motivation for clients to stay in a relationship with a CPA firm is the monetary benefits.  Examples of monetary benefits include discounted fees on existing services, or new projects.  Despite the obvious benefits to the client, financial bonds are the least effective in terms of generating client loyalty.  Competitors in many instances can easily match lower fees, and it is not in the best interest of CPA firms to compete on price.   Therefore, before CPA firms consider lowering fees to existing clients, or offering discounts for new services to these clients, they should consider the limited benefits of such actions on client retention. 

Social Bonds

A stronger motivation for clients to stay in a relationship with a CPA firm is social bonds.  These social bonds influence a client's emotions or feelings toward the CPA firm, and are much more difficult for other CPA firms to compete with than fee levels.  It is no coincidence that CPA firms invite clients to engage in social activities such as playing golf and attending dinners, shows and ball games.  Combining work and social activities through working lunches, for example, also serves to strengthen the relationship. Despite the benefits of strengthening social ties, CPA firms should pay careful attention to how these social bonds are formed.  If the social interaction is initiated by a single professional at the CPA firm, the bond may be formed with an individual, as opposed to the firm.  If the professional leaves the firm, the risk of a client leaving is much higher.  Therefore, when considering social activities, it is important for the CPA firm to invest in activities that strengthen social bonds at a firm, as opposed to an individual, level.  Examples of these types of activities include parties, receptions and group activities (involving a number of professionals from the CPA firm), as opposed to activities involving contact with only one professional at the firm.  Similarly, social bonds should be established with a number of people at the client firm.  This minimizes the risk of losing the client when the contact person, such as the controller or CFO, leaves the company.

Structural Bonds

The strongest type of bond between a client and a CPA firm is structural bonds.   According to Dr. Berry structural bonds involve a "superior solution to the customer problem that is embedded into the system."  In other words, the solution is not dependent on a specific individual providing the service.  For example, if a CPA firm has a proprietary computerized system that simplifies the audit process, and reduces the amount of time the client's employees need to interact with the CPA firm, this would be considered a structural bond.  By reducing the amount of time the client's employees need to spend on the audit, employees are able to spend more time on their other responsibilities.  Another example is developing expertise in an industry that enables a CPA firm to provide customized solutions to client problems. It is worth noting that a structural bond has to be a "superior solution", so if another CPA firm has a similar computerized system, or industry expertise, this would not be considered a structural bond.

Where to Invest Marketing Resources?

According to Dr. Berry investing resources to strengthen all three types of bonds is the most effective way to retain clients.  However, due to a CPA firm's limited resources, many firms may need to assess the effectiveness of the various types of bonds in terms of client retention. 

Clearly, the most effective type of bond in client retention is structural bonds.  However, it also is the most difficult to create.  Can a CPA firm create a "superior solution to the customer problem that is embedded into the system"?  How difficult is it for competitors to imitate this solution?  If a CPA firm can develop a creative solution in a cost-effective manner, this is a good choice.  Developing industry-specific expertise may be a successful way to create a structural bond.  However, if the structural bond involves the investment of a considerable amount of resources, this may be beyond the reach of many small to mid size CPA firms. 

Financial bonds, on the other hand, are the least effective.  Reducing fees can easily be matched by competitors, so in the long run the likelihood of clients leaving is much greater when compared with investing in the other types of bonds.

Investing in social bonds may be the most viable option for many small to mid size CPA firms who cannot afford to invest in structural bonds.  Strengthening social bonds can be accomplished in a cost-effective manner.  As previously discussed, social ties are much more difficult for other firms to compete with, so investing in this type of bond is a very useful way to retain clients in the long run.

About the Author

Daniel Laufer, PhD, MBA, CPA (Ohio) is an Associate Professor of Marketing at Yeshiva University in New York City. He teaches academic courses on the topic of Developing Client Relationships at Accounting Programs, as well as continuing education courses on the topic to CPAs. He has experience in Industry as a manager at a "Big 4" Accounting Firm. Dr. Laufer has also served as an editorial advisor to the Journal of Accountancy, and received a Distinguished Service Award for his service.

For comments, you can contact Dr. Laufer at danlaufer@aol.com

Copyright © 2007 Daniel Laufer. All Rights Reserved. Used by Permission.