Brand is demand

The brand of a premium professional services firm drives more than 50% of the overall firm’s annual profitability. However, most professional service firms’ focus on managing this most valuable asset belies its importance to their performance and growth.

Brand drives demand for all professional service firms. A simple and conservative analysis shows that more than 50% of a large firm’s overall profitability is derived from its brand*. The balance comes from the collective reputation (i.e. the personal brands) of the firm’s partners, who, of course, also significantly contribute to stimulating overall demand in the market.

Why is it important to take a strategic and leadership-led approach to managing your firm’s brand in the market?

By brand, I obviously don’t mean the logo. By brand, I mean the firm’s overall reputation in the market as a whole and within that its reputation among multiple specialist sectors and groups of client stakeholders:

  • What it stands for.
  • What it’s best at.
  • Where it operates.
  • Why it’s better than its rivals for solving particular problems.

I’ve written a lot in other articles about ‘how’ to enhance a firm’s brand (click here to browse a few topics). So, in this article, I’m going to focus a bit on the ‘why.’ Why is it important to take a strategic and leadership-led approach to managing your firm’s brand in the market?

Do the math/s

How do you get to a figure of 50% of a firm’s profitability deriving from its brand?

The answer is to assume that at three critical stages of the BD funnel – creating demand in the market, converting that demand into revenues and pricing that revenue to produce profits – the brand adds 25% to what the firm’s partners could achieve if all else were equal, except that they were operating from a firm with no market reputation (or, let’s more reasonably say, from a firm that the clients didn’t know much or anything about).

#1 Awareness

So, assumption #1 is that the firm’s reputation in the market is responsible for 25% of the potential revenues that the firm comes across in a year – i.e. 25% of the high-quality RFPs, pitches and tenders that clients send its way.

#2 Conversion

Assumption #2 is that the firm’s brand reputation drives 25% of the conversion of these leads. In other words, the brand influences decisions to go with the particular firm rather than another in 25% of cases.

#3 Pricing

Assumption #3 is that the firm’s brand reputation enables fee rates to be 25% higher than the partners leading the relationship might otherwise be able to achieve acting from another firm unknown to the clients.

If this asset called a brand, is driving more than 50% of a firm’s profitability, what level of focus should there be among the firm’s leadership team in maintaining, nurturing and even growing it?

This is a thought experiment, of course. I can’t conceive of a real-life simulation where researchers could take a bunch of partners out of their firm for a while, but if you have trouble relating this to your firm and its brand, try it out with a McKinsey, a PWC, a Latham or an Arup. Could their brands be driving 25% of their leads, conversions and pricing power? It feels pretty easy to agree they could.

So, if you agree that 25% is a reasonable – even conservative – level of contribution, the table below* shows the impact of this on leads, revenues and profits of a typical premium professional services firm.

Suppose you’re at all sceptical about 25% being a fair proportion. In that case, it’s worth remembering that this applies to the partnership as a whole and not just to the handful of partners in a firm who have market-leading brand reputations of their own. For many of the remaining partners, the contribution of the firm’s brand could be even more significant than 25%.

A brand’s image and perceptions drive leads; its value proposition drives conversions; its reputation for delivery and impact drives pricing power.

25 becomes 50

This article is all about the ‘why’ rather than the ‘how’, but the overall point is that if this asset called a brand, is driving more than 50% of a firm’s profitability, what level of focus should there be among the firm’s leadership team in maintaining, nurturing and even growing it?

Most premium professional service firms have quite sophisticated business strategies these days. Still, these strategies tend to be heavily weighted towards supply-side factors: resources, capabilities, locations, structures, and technologies, because of history and heritage. In my experience, they tend to be relatively light when it comes to the demand-side factors: market saliency, value propositions, client experience and thought leadership. And it’s these demand-side factors that are particularly important when it comes to nurturing and growing a firm’s brand reputation in the market.

Where to start

The math/s also provides an excellent structure for breaking down the components of the brand. A brand’s image and perceptions drive leads; its value proposition drives conversions; its reputation for delivery and impact drives pricing power. Of course, these components overlap and interact, but their influence peaks at specific points along the journey from selling to delivering.

So, as your firm’s CMO, next time you’re in a leadership conversation that’s premised by “we’ve got a lot on, why should we be focusing bandwidth on our brand?” mention the 50%.

*


Ian Stephens

CEO and Founder of Principia, the world's leading strategic consultancy specialising in brand-led transformation for knowledge-led businesses.