When it comes to online marketing, some firm leaders are moving aggressively to exploit this new approach to client acquisition, while the majority are staying in the slow lane, to the detriment of their firms’ growth and profitability.
The link between online marketing and growth
It's no accident that professional services firms that most avidly embrace online marketing and specialization demonstrate faster growth and higher profitability.
Consider the following: Professional services firms that generate at least 40 percent of their leads online exhibit substantially higher growth rates and profit margins than their peers who are less active online, according to the Hinge Research Institute’s study, Online Marketing for Professional Services. The median two-year growth rate for the more aggressive group is about 54 percent — more than 30 percentage points higher than the growth rate of the less aggressive firms (see below).
Similarly, profit margin for the most active online marketers is 10 percentage points higher than the profitability of more conservative firms (see below).
Notice the narrow differential between the two conservative groups. Firms that generate no leads online experience a growth rate that is just 5 percentage points lower than those that generate a moderate percentage of leads online. When it comes to profitability, there is zero difference between those two groups. It seems that when it comes to the relationship between online marketing and financial performance, there’s not much difference between a minimal amount of activity and no activity at all.
Why do firms that generate a higher percentage of online leads exhibit better financial performance? Our data do not provide a definitive answer, but we think there are a number of factors at work:
Online marketing is less expensive over the long term. Consider a firm that makes an investment in search engine optimization. After an initial upfront investment, leads will continue to flow in without incurring high ongoing costs.
Compare this to the sustained campaign expenses of traditional marketing techniques. According to The State of Inbound Marketing in 2012 by HubSpot, online leads generated from inbound marketing had a 62 percent lower cost per lead than those generated using traditional approaches such as trade show, direct marketing and telemarketing.
Online marketing breaks down barriers. Technology is shrinking the world around us. Due to online marketing’s greater geographic reach, firms can target clients anywhere in the world.
Online marketing can generate more targeted leads. Online marketing is powered in part by its focus on specific keywords and phrases that drive search engine traffic. For this reason, firms that are successful online marketers usually have a strong strategic focus on specific industries or services—or they quickly embrace that mentality. Also, when prospects search on highly specific keywords, they are essentially prequalifying themselves. The most astute online marketers are targeting their online content to drive higher-margin engagements, further increasing ROI.
Driving up firm valuations
Whether you're pursuing a long-term strategy that involves shopping your firm to potential acquirers or grooming the next generation of leaders, firm value is likely at the top of your list of priorities.
The ability to produce higher-margin engagements at lower cost will contribute to higher value in the eyes of acquirers and potential talent. On the other hand, accounting firms that play it too safe in the digital marketing realm could face lower valuations in the eyes of potential acquirers and their own talent base.
Accounting firms lag other professions
When it comes to online marketing, accounting firms are late to the dance.
Whereas about 15 percent of all professional services firms in our study generated 40 percent or more of their new business leads online, only about 8 percent of accounting and financial services firms met this benchmark.
Accounting firms are also more conservative in their planned increases in digital marketing spending. Our research shows that the average accounting/financial services firm is planning to increase online marketing spending by just 22.5 percent — the lowest average increase of the industries we studied. Contrast that finding with a planned 94 percent increase by management consulting firms and 121 percent increase by technology firms. Accounting firms that fail to promote their services online may find that firms in other industries are encroaching on some of their specialized services, such as management and IT consulting.
A missed opportunity
Given the relationship we’ve observed between online marketing and financial performance trends, we would expect to see the conservative accounting/financial services segment producing below-average growth and profitability.
In fact, that is precisely what we found. Accounting and financial services firms report a median two-year growth rate of 18.5 percent and median profitability of 12 percent. Both statistics put them at the bottom of the list of sectors we studied.
Move into the passing lane
There are certain areas where conservatism can be more costly than decisive action. Driving on the highway is one, and online marketing is another.
On the other hand, CPAs’ relatively low level of participation in online marketing comes with a silver lining for those firms that do embrace it. When a firm’s competitors are proceeding with extreme caution, even small changes in strategy can have a dramatic effect.
Accounting firm leaders are faced with a choice: You can accelerate your online marketing efforts, increasing the chances that you will move ahead of your competitors. Or you can stay the course and hope for the best. Of course, as with any aggressive strategy, speeding up does have its hazards. But if you decide to stay in the slow lane, don’t be surprised when the more aggressive firms pass you by.
Lee Frederiksen, Ph.D., is managing partner of Hinge, a Virginia-based marketing and branding firm that focuses on professional services firms.