Are anchor clients worth pursuing? Or do their cons outweigh their pros?
Like any strategic choice, the value of anchor clients depends heavily on the context of your business, including what you want it to be.
But in general, I think steady, meaningful work, with good people, for good pay, is never a bad thing. So I believe anchor clients are valuable to cultivate – in the right conditions. That’s the case I’ll make today – as well as a few tips on how to do it.
What Are Anchor Clients?
I define an anchor client as one who gives you predictable and recurring revenue over time, and who comprises a significant portion of your revenue.
The definition of “significant portion” will vary for each of us. I’ve experienced percentages as high as 70% of my annual revenue, and have heard of relationships that were 100%.
But most freelancers and consultants I know are most comfortable if a single client is between about 15-35% of revenue. (Which means you can have more than one anchor client at a time.)
What Are the Pros of Anchor Clients?
An anchor-client relationship can benefit your freelance biz in several ways:
Less selling & quoting.
With an anchor client, you make a single sale that turns into recurring engagements and income.
Stabilized cash flow.
Anchor clients move you from “zero predictability” to “some predictability,” and that’s a big financial and mental difference.
When you work with a good client over time, you develop a natural rhythm, so communications and project management take less time.
You can go deep.
As you come to know your client’s business on a deeper level, they can often tap into more of your skillset.
A personal example: One anchor client originally hired me for a positioning project, and subsequently engaged me for strategic planning, project leadership, focus group moderation, presentations at company meetings, and marketing planning.
And remember – your anchor client benefits from that depth too. Your outputs improve as you get to know their biz better. And they can rely on your availability, which means they don’t have to constantly search for new partners.
What Are the Cons of Anchor Clients?
Here are the primary objections to anchor clients, and my thoughts on each.
“Anchor clients can suddenly dry up, so it’s too risky.”
Any client can suddenly dry up; you just feel it more when it’s a larger dollar figure.
To protect against the risk of a sudden end to the relationship, add a cancellation clause to your agreements. I think 60 days is reasonable in most cases.
But I wouldn’t reject good work on the basis that it might go away someday. Enjoy your ice cream while it’s on your plate.
“You can get comfortable and complacent.”
This is not a problem with anchor clients; it’s a problem with getting comfortable and complacent.
“It can be tough to raise rates with anchor clients.”
In some cases, yes. In other cases, it’s a remarkably brief conversation.
But anchor-client relationships simply don’t work if the rates are too low. So train your clients that annual price increases are part of your process.
“Anchor clients reduce schedule flexibility.”
This is true. Anchor clients reserve some of your time, so that time is now less flexible. This is a feature, not a bug.
“Anchor clients can push boundaries or shift scope.”
Been there! With all kinds of clients, not just anchor clients!
So prevent it from happening – create a clear scope up-front.
What Are the Conditions in Which Anchor Clients Work Best?
Here are some conditions that will help an anchor client relationship to flourish.
The pay is good.
This may sound obvious, but sometimes the client will propose a heavy discount to reserve an ongoing block of your time. And when you lock up a lot of hours at a low rate, the opportunity costs increase accordingly.
Remember: They’re benefitting from the relationship too. And you’re not a factory – each widget (in this case, your time) doesn’t get cheaper with more throughput.
When you have an extended relationship for good pay, it may dry up at some point, but at least you made your hay while the sun was shining.
You can grow with them.
You can grow with your clients by delivering more of a single service, a broader range of services, or both. Clearly, it helps if their business is growing or is already a certain size.
They don’t use all your bandwidth.
In most instances you’ll want an anchor client to use “some but not all” of your bandwidth. This allows you to build relationships with other clients, anchor or otherwise.
You have an out.
Sometimes things change. Maybe your favorite point of contact retires and is replaced with a real Lumbergh. Should the relationship head south, make sure you don’t have to live with that for too long. Structure the contract language accordingly.
How Do I Find and Develop Anchor Clients?
Look for clients with growth potential.
This can be a client in a growth industry, who is outpacing category growth, or who is already large enough that you can grow within them.
Personally, I prefer clients that are at least “second-stage” – as in, there is proof of concept – to pure start-ups, which may grow (sometimes chaotically) or may suddenly go belly-up.
Develop – and communicate! – your personal “bench strength.”
In almost every case, a new client hires us to do “a thing,” but that thing is only a portion of our skill set and offering.
And because they hired us to do one thing, they often pigeonhole us accordingly. So, be sure the client team is familiar with your full range of services. A quarterly review or project milestone is a great time to do this.
Keep your antennae up.
What else is happening that you could help them with? When is their annual planning process? (You’d rather be involved early than late.) Have their competitors made moves that demand a response?
Pro-tip: Speak with your primary contact regularly, by voice, Zoom or in-person. Email lacks nuance and depth, and a live conversation allows for connection and serendipity.
Make sure they’re winning too.
Be an excellent partner, not just a good one. Make sure they know they’re a priority. Be reliable, professional and easy to work with. Look for ways to go above & beyond.
Keep marketing, always.
Your next anchor client may originate from the very next gig you land. So go find that next gig!
Your time is valuable, and I hope I’ve rewarded it. If so, your shares are greatly appreciated, as I try to spread the gospel to as many freelancers as possible.
I have a limited number of slots available for 1-1 coaching. I’m not some guy who’s been freelancing for a minute – I’ve been doing it since 1997, with brands you’ve actually heard of. Click here to find out more about how my coaching services can help you level up.
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