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Is 2010 the Return of the Corporate Expense Account?

4.13.2010

Once upon a time, if you were a big and profitable investment banking or law firm client, you might receive tickets to The Masters, the Super Bowl, floor seats to the Final Four or a U2 concert. Back in those days we have all cringed and laughed at the stories of investment bankers treating clients to unforgettable yet regrettable evenings of pay-to-play strip club entertainment. Today, client entertainment seems to have settled in to a new normal: the innocuous golf game or dinner or lunch. It is enjoyable and a good way to get to know your clients on a personal level.

The investment (or expense) of client entertainment is small relative to the revenue generated by a client - many companies allocate 3-5% of gross revenue on client entertainment, though some firms allocate 8 to 10% with top customers. Taking a client to dinner and to a ball game is a way to say "thank you" and convey that "you are important to me." It's not an opportunity to blindly spend company funds but should be a strategic use of time and resources to build and strengthen relationships with the customers with whom you do business. Banks, law firms, companies, and professional services firms get this and most do it well especially post economic meltdown. Some companies, however, believe that there is no such thing as a free lunch and enforce strict corporate policies limiting or even prohibiting client entertainment.

However, it is our experience that a business relationship is established and maintained by the quality of the product and/or service. If you fail to meet or exceed your client's expectations, no amount of entertainment will keep their business or relationship. One Fortune 100 executive who awards millions of dollars to professional service firms agrees. "I really don't want to be wined and dined. I get a lot more done and have taken off five pounds due to eliminating an endless stream of lunches."

On the other hand, a financial services executive believes that client entertainment is "absolutely vital" to building and maintaining a client base. In addition to regular lunch and dinner engagements with clients, he is also creative, whether it's sending a bottle of high-end scotch to one or signing on as a sponsor to a charity event to which another client regularly volunteers his time. He stresses that client entertainment is "not about the price tag" but about sending the right and appropriate message...that you value the relationship and that your clients are important to you.

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