What are the benefits of market research for professional services firms? Is it worth the cost? And does it really matter?
These are some of the questions we get from our clients when we recommend researching their current clients and target markets. While on some level we all know that market research is a good thing, these are legitimate questions. What exactly are the costs and benefits of market research?
Why Market Research?
Let’s start with why your professional services firm should consider using market research in the first place. There are a number of occasions where market research is appropriate. Here are some of the most typical situations where you’d use it:
- When your firm is launching a new service
- When you’re looking to select verticals to concentrate on and specialize in
- When you’re developing your organizational strategy
- When your firm is seeing a diminishing market share
- When your industry environment is changing
- When your firm needs to accelerate growth
The Benefits of Market Research
While there are many intangible benefits of market research on your current and prospective clients, such as better targeting and a more accurate understanding of how your firm is viewed, there is a much more tangible and direct measure of benefits. In a study of high growth professional services firms, we found that professional services firms that do systematic, structured research on their target client groups are more profitable and grow faster.
This relationship is documented in the figure below.
This figure shows the growth rate and profitability of professional services firms that do no research, occasional research or frequent research (at least quarterly) on their target client group.
Because of the specificity of these findings we are in a position to project the true economic benefits of market research for services firms. But first let’s consider the cost side of the equation.
The Cost of Market Research
The cost of a specific market research program is determined by the research method used (face-to-face interviews are more expensive than phone interviews, for example) and the sample size needed. Larger firms will typically require a larger sample. Taking these variations into account, we have estimated the typical market research costs for both occasional research (once per year) and a program of frequent research (quarterly).
Below are estimated costs for a single round of research for three sizes of firms:
- Small ($ 5M revenue): $10,000
- Medium ($20M revenue): $20,000
- Large ($200M revenue): $40,000
For a program of frequent research (quarterly) you can simply quadruple these estimates. And keep in mind that the average duration of a market research project ranges from about 2 to 8 weeks.
The Return on Investment of Market Research
With estimates for the costs and economic benefits, we can now calculate the return on an investment in a program of market research for a professional services firm. For each of the three firm sizes, we’ll subtract the total research cost from the economic gain. This shows the net increase to top line revenue and bottom line profitability over a one year period.
Two things are immediately apparent from this analysis. First, the net return on invested research dollar is very sizable. If your firm realizes even a small fraction of the documented benefits of market research, you are well advised to make the investment.
The second observation is that the larger the firm, the greater the return on invested dollars. This is a very straightforward relationship arising from the observation that the expense of market research does not rise in lockstep with firm size. Put another way, market research is a relative bargain for larger firms.
Putting Research to Work in Your Firm
Sadly, market research is not magic. To enjoy the generous benefits it can provide, you need to take it seriously and systematically use it to adjust strategy and shape staff behavior. As it turns out, well-conducted and well-presented market research is often a powerful catalyst for change.
Historically, professional services marketing has been driven by hunches and habits. But most professionals are pretty logical and fact based in their work. Consequently, they are often refreshingly open to new data on their clients’ behavior and perceptions. Perhaps that is why it works so well.
How Hinge Can Help
Need help conducting market research? Research gets to the core of what will resonate with those audiences—and is an integral part of what Hinge does for clients. Learn more about our research services or contact us to learn whether research makes sense for your professional services firm.