Managing LSP Customers to Maximise Profits

As a Language Service Provider (LSP), effectively managing your customer portfolio is a powerful strategy to drive growth, profitability, and long-term success. Just like products, customers can be analysed and categorised based on their potential for growth and their contribution to your business. Many LSPs focus on attracting new customers, which is undeniably important, but managing the customers you already have is a core competence you must develop for sustainable growth.

Customer relationships are dynamic and evolve over time. Their needs, preferences, and perception of value may shift due to various factors over their lifetime. Therefore, it is essential to have a framework that manages opportunities throughout the entire customer journey.

Adapting the Boston Matrix for Customer Portfolio Management

When teaching this topic, I adapt the principles of the Boston Matrix, a well-known tool for product portfolio management. By applying this framework to your customer portfolio, you can develop effective strategies for managing relationships, allocating resources, and making informed decisions about investment and growth.

The Boston Matrix categorises customers into four distinct groups based on the growth of their industry and your relative strength within their business compared to other language service providers. This categorization allows for a tailored approach to each customer segment, ensuring that efforts and resources are prioritised effectively.

Understanding the Boston Matrix

The Boston Matrix, also known as the BCG Matrix or Growth-Share Matrix, is a strategic planning tool developed by Bruce Henderson of the Boston Consulting Group in the 1970s. Its primary purpose is to help companies analyse their product portfolio and make informed decisions about resource allocation, asset management, and growth strategies. It’s easy to understand and can be used by almost anyone in your organisation.

At its core, the Boston Matrix is a visual representation of a company’s product portfolio, categorising each product or service based on two key dimensions: market growth rate and relative market share. By plotting these dimensions on a four-quadrant grid, businesses can gain valuable insights into the performance and potential of their offerings.

The four quadrants of the Boston Matrix are:

• Stars: Products or services with high market growth and high relative market share. These are the top performers in the portfolio, generating substantial revenues and profits but often requiring significant ongoing investment to maintain their competitive position.
• Cash Cows: Products or services with low market growth but high relative market share. These offerings are well-established and generate stable, reliable cash flows, which can be used to fund investments in other areas of the business.
• Question Marks: Products or services with high market growth but low relative market share. These offerings show potential for growth but require careful evaluation to determine whether they are worth investing in to increase market share.
• Dogs: Products or services with low market growth and low relative market share. These offerings generate limited profits and may consume more resources than they are worth. Companies must decide whether to divest or reposition Dogs, freeing up resources that can be better utilised elsewhere in the portfolio.

While originally designed for product portfolio management, the principles of the Boston Matrix can be adapted and applied to various aspects of business, including managing a portfolio of customers or business units. By understanding the underlying concepts and tailoring the dimensions to specific contexts, companies can leverage the Boston Matrix to make informed strategic decisions and drive success across their operations.

Adapting the Boston Matrix for an LSP

The principles of the Boston Matrix can be effectively adapted to manage a portfolio of customers within the context of LSPs. By treating each customer as a unique entity, LSPs can apply portfolio management philosophies to optimise resource allocation, investment, and customer relationship management.

In our bespoke model, we replace the original dimensions of market growth and relative market share with dimensions more relevant to managing customer relationships:

• Industry Growth: This dimension replaces market growth and represents the growth potential of the customer’s industry or market. Customers operating in high-growth industries are more likely to have increasing language service needs and offer greater opportunities for the LSP’s growth.
• Relative Strength: This dimension replaces relative market share and represents the LSP’s relative strength within the customer’s business compared to other language service providers. A high relative strength indicates that the LSP is a preferred or dominant vendor for the customer, while a low relative strength suggests that the LSP has a smaller share of the customer’s language service business.

Categorising customers based on these two dimensions LSPs can create a four-quadrant matrix similar to the original Boston Matrix:

Cash Cow Customers:

Generate steady, predictable revenue with minimal additional investment. These long-standing customers have stable language service needs and efficient service delivery, resulting in high profitability. The strategy for Cash Cows should prioritise protecting and preserving these relationships while maximising profitability through efficient service delivery and strong relationship management.

Future Stars:

Customers with high growth potential. These customers are in the early stages of their relationship with the LSP and show promise for expanding their language service needs. LSPs should invest in these customers through market research, proactive outreach, customised solutions, and strategic partnerships. Nurturing Future Stars involves tailored service packages, strategic partnerships, and dedicated resources to support their growth.

Question Marks:

Customers with high potential but high uncertainty. These customers operate in dynamic or emerging markets and may have evolving language service needs. LSPs should evaluate these customers’ growth potential and prioritise resources accordingly. Managing Question Marks requires careful evaluation of their potential and strategic resource allocation to determine if they can be converted into Future Stars.

Dogs:

Customers with low revenue and limited growth potential. These customers may require a disproportionate amount of resources relative to the revenue they generate. LSPs should consider whether to divest or reposition these customers to free up resources for higher-potential customers. Streamlining processes and evaluating profitability are key strategies for handling Dogs, with the option of divesting if necessary.

Managing Each Customer Category

Cash Cows:

Cash Cow customers are the foundation of an LSP’s financial stability and profitability. These customers generate consistent revenue with minimal additional investment. Typically, these customers have been with the LSP for an extended period, resulting in established relationships, predictable demand, and streamlined processes. The LSP has a deep understanding of the customer’s needs, allowing for efficient service delivery and minimal friction in the relationship.

To maximise profitability, the strategy for managing Cash Cows should focus on protecting and preserving these relationships. This can be achieved through maintaining high service quality, regularly reviewing and adjusting pricing strategies, and identifying opportunities for upselling or cross-selling additional services. Ensuring customer satisfaction and loyalty is paramount, as losing a Cash Cow can significantly impact the LSP’s revenue stability.

Future Stars:

Future Stars are the customers that show potential for high growth and are likely to become significant revenue contributors in the future. These customers are in the early stages of their relationship with the LSP but show promise in terms of their expanding language service needs and strategic alignment with the LSP’s capabilities.

Future Stars are typically characterised by their rapidly growing business, increasing international presence, or expanding product lines that require localization and translation services. They may be startups or emerging companies in high-growth industries, such as technology, e-commerce, or healthcare. As these customers grow and succeed in their respective markets, their demand for language services is expected to increase substantially.

To nurture Future Stars, LSPs should focus on:

• Market research: Continuously monitor market trends and identify companies or industries with high growth potential that align with the LSP’s strengths and service offerings.
• Proactive outreach: Engage with potential Future Stars early in their growth journey, demonstrating the LSP’s expertise and value proposition in supporting their international expansion or localization needs.
• Customised solutions: Develop tailored service packages and pricing models that cater to the unique needs and budgets of Future Stars, helping them scale their language services as they grow.
• Strategic partnership: Position the LSP as a strategic partner that can support Future Stars’ long-term growth objectives, rather than merely a transactional vendor.
• Investment and resources: Allocate adequate resources, such as dedicated account managers, to support Future Stars and ensure they receive the attention and service quality needed to foster long-term loyalty.

Investing in Future Stars may require more upfront effort and resources compared to managing established Cash Cow customers. However, the potential long-term benefits of nurturing these high-growth customers can be substantial. As Future Stars grow and mature, they have the potential to become the LSP’s next generation of Cash Cows or even Strategic Accounts, providing a significant and stable revenue stream for years to come.

Question Marks:

Question Marks, also known as “Problem Children,” are customers that present both high potential and high uncertainty for an LSP. These customers have a promising profile and may require a significant amount of language services, but their future growth and loyalty to the LSP are uncertain. They often operate in dynamic or emerging markets, have evolving language service needs, or are still developing their localization strategies.

Question Marks are characterised by their potential for growth but also by their unpredictability. They may have a limited track record of working with LSPs or have not yet fully committed to a long-term partnership. These customers may also be more price-sensitive or demanding in terms of service levels, as they are still evaluating their options and determining the value of language services for their business.

To manage Question Marks effectively, LSPs should carefully evaluate each customer’s growth potential, considering factors such as their industry, target markets, and localization needs. They should prioritise resources and focus on Question Marks that show the highest potential for growth and alignment with the LSP’s strengths and strategic objectives.

Dogs:

Dogs are customers that generate low revenue and have limited potential for future growth. These customers may have been with the LSP for a while but have not grown significantly over time, or they may be new customers with small-scale, sporadic language service needs. Dogs typically operate in mature or declining markets, have a limited international presence, or have a low strategic priority for localization.

Dogs are characterised by their low profitability and limited potential to contribute to the LSP’s long-term growth. They may require a disproportionate amount of resources relative to the revenue they generate, straining the LSP’s capacity and profitability. Additionally, Dogs may be more price-sensitive and less likely to invest in premium language services, making it challenging for the LSP to upsell or expand the relationship.

When managing Dogs, LSPs should focus on optimising resource allocation and minimising the potential drain on profitability. This can be achieved by:

• Streamlining processes: Implement standardised, efficient processes for serving these customers to minimise the time and resources required to meet their needs.
• Automating and outsourcing: Utilise language technology and outsourcing options to reduce the cost of serving these customers while maintaining acceptable service levels.
• Bundling services: Offer packaged or bundled language services that cater to the limited needs of this group at a competitive price point.
• Regularly assessing profitability: Monitor the profitability of each and make informed decisions about whether to continue serving them or allocate resources elsewhere.

In some cases, it may be necessary for LSPs to make the difficult decision to end relationships with customers in this quadrant. They consistently generate low revenue and show no potential for growth, and resources may yield a higher return elsewhere.

Movement Through the Matrix

Customer portfolios evolve. Customers move through the different categories of the adapted Boston Matrix over time. This movement can be influenced by various factors, such as changes in the customer’s business, market conditions, and the LSP’s strategies and performance. Understanding and anticipating these shifts is crucial for LSPs to effectively manage their customer portfolio and make informed decisions about resource allocation and growth strategies.

Here are some common customer movements within the matrix:

• Question Marks to Future Stars: When a Question Mark customer demonstrates consistent growth and increasing demand for language services, they may transition into a Future Star. This happens when the LSP successfully nurtures the relationship, provides value-added services, and supports the customer’s international growth. As the customer’s loyalty and revenue potential increase, they become a more significant and stable part of the LSP’s business.
• Future Stars to Cash Cows: As Future Stars mature and their growth stabilises, they may evolve into Cash Cows. This occurs when the LSP has established a strong, long-term relationship with the customer, and the customer’s language service needs become more predictable and consistent. Cash Cows provide a reliable revenue stream and require less investment to maintain, allowing the LSP to allocate resources to other high-potential customers.
• Cash Cows to Dogs: In some cases, a Cash Cow customer may become a Dog if their business declines, their market becomes saturated, or they shift their priorities away from localization. This can happen gradually or suddenly, depending on the circumstances. LSPs should monitor their Cash Cow customers closely and be prepared to adjust their strategies if they show signs of declining revenue or growth potential.
• Question Marks to Dogs: Some Question Marks may fail to realise their growth potential and transition into Dogs. This can occur if the customer’s business model changes, their market conditions deteriorate, or they decide not to invest in language services. LSPs should regularly reassess their Question Mark customers and make strategic decisions about whether to continue investing in them or reallocate resources to more promising opportunities.
• Dogs to Question Marks or Future Stars: Occasionally, a Dog customer may experience a resurgence or a change in their business strategy that increases their language service needs. This can happen if the customer expands into new markets, launches new products, or undergoes a strategic transformation. LSPs should remain vigilant and be open to reassessing and reclassifying these customers as Question Marks or Future Stars if their circumstances change.

Occasionally, a Dog customer may experience a resurgence or a change in their business strategy that increases their language service needs. This can happen if the customer expands into new markets, launches new products, or undergoes a strategic transformation. LSPs should remain vigilant and be open to reassessing and reclassifying these customers as Question Marks or Future Stars if their circumstances change.

To effectively manage customer movement through the matrix, LSPs can:

Conclusion

Using the adapted Boston Matrix helps LSPs manage their customer portfolio strategically, optimise resource allocation, and drive long-term success. By understanding the unique needs of each customer segment, LSPs can develop tailored strategies to nurture and develop relationships, ensuring a sustainable and profitable business model. While Cash Cows provide the stability needed to thrive, Future Stars represent the growth potential essential for continued success. Question Marks offer opportunities for strategic investment, and managing Dogs efficiently allows them to focus on higher-value customers.

In a dynamic and competitive market, the principles of the Boston Matrix can be effectively adapted to manage a portfolio of customers within the context of Language Service Providers (LSPs). By treating each customer as a unique entity, LSPs can apply portfolio management philosophies to optimise resource allocation, investment, and customer relationship management.

Additionally, several trends highlight the importance of effectively managing your customer portfolio:

• Trend Towards Fewer Suppliers: Customers in our industry are increasingly consolidating their supplier base. This trend necessitates better management of existing customers to retain and grow these relationships.
• Automation of Sales: With the rise of automation in sales, especially for transactional deals, building customer teams that can understand and implement this model is crucial.
• Customization and Personalization: Customers increasingly expect tailored services that meet their specific needs. LSPs that can offer customised solutions and personalised services will likely see stronger customer retention and satisfaction.
• Expansion of Multimodal Services: With the increasing use of video and multimedia content, LSPs that offer translation and localization services for these formats can tap into new opportunities and cater to a broader range of customer needs.
• Value in an AI-Driven World: In the new AI-driven world, your key customers need your international tech-driven ecosystem more than ever. LSPs are becoming increasingly valuable partners.