High Growth Strategies for Your Professional Services Firm: 1

In February, Hinge will release a new study of high growth professional services firms. In this month's issue, we define some of the characteristics of high growth firms and discuss in general how they spend their marketing dollars. In the next two issues, we'll dive deeper into our research and discuss its implications for firms like yours.

What if someone told you could grow your professional services firm nine times faster than average and dramatically increase your profitability — all with only an average investment in sales and marketing? Sound too-good-to-be true? Yet that's exactly what we uncovered when we ran the numbers from our soon-to-be-released research study, The High Growth Professional Services Firm: How Some Firms are Able to Grow in Any Market.

In fact, the high growth firms in our study achieved these ratios in the face of the most challenging market since the Great Depression. How did these firms do it? And are there lessons here for average growth firms? In this first of a 3-part series, we'll begin answering these and other questions.

What is a High Growth Firm?

For the purposes of our research, we've defined high growth firms as those that achieved at least a 20% annual revenue growth over the period of the study. In aggregate, however, the firms that met our high-growth criteria far outperformed this 20% threshold.

Growth Rate

Growth rate table

 

This data clearly shows that companies in both the high growth and average growth categories suffered as the recession deepened in 2008-2009. But the declines among the high-growth category were much milder than for average firms.

Size and High Growth

Conventional wisdom says small companies tend to grow faster than large ones. And in general, our research bears out this assumption: high growth firms tend to be smaller than their average growth peers. Average firms have almost twice the number of employees than high growth firms (about 254 vs. 131). And average firms generate larger revenues, as well ($57.2M vs. $27.8M).

It is interesting to note, however, that despite their smaller size, high growth firms brought in substantially higher real dollar growth. For every $1 in new revenue brought in by an average firm, a high growth company brought in $2.50.

Spending and Growth

What is the relationship between spending on marketing/sales and increased revenue? Is increased spending a reliable way to boost business development? This year's study supports a finding in our 2008 research report Defying Gravity: Competitive Strategy Study of Professional Services Firms: there is a very clear correlation between the amount of money invested in marketing and sales and firm revenues.

But now it gets interesting. When we looked at high growth firms, they actually spent slightly less than average growth firms on marketing and sales, but they make 50% higher profits.

Business Development Spending
 
Business development spending chart

 

Profitability
 
Profitability chart

 

There is a lot more to the story, of course — we found substantive differences between how high growth and average growth professional services firms approach marketing. We'll begin looking at some of these differences next month. Stay tuned!

We are always looking for ways to improve this publication. If you have ideas or suggestions, email them to us at [email protected]. Thank you!
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