double top - law firms need to focus on existing clients as well as new ones
TRANSCRIPT
INSPIRED CLIENT MANAGEMENT SEPTEMBER 2014
DOUBLE TOP: LAW FIRMS NEED TO FOCUS ON EXISTING CLIENTS AS WELL AS NEW ONES FOR REVENUE GROWTH
CONTENTS
1. THE LEGAL SERVICES MARKET HAS A NEW NORMAL
2. WINNING NEW CLIENTS IS DIFFICULT, TIME CONSUMING AND EXPENSIVE
3. FIELDS OF GOLD UNDER YOUR FEET
4. HOLD ON TO YOUR VALUABLES
5. USE YOUR ASSETS TO LEVERAGE GROWTH
6. LIFT UP YOUR HEAD OCCASIONALLY: YOU MIGHT JUST SEE A CLIENT TO FOCUS ON
7. THE RESULT: HIGHER REVENUE AT LOWER COST
Copyright © 2014 Inspired Client Management
1
Law Society forecasts have predicted that the market for legal services should improve as business activity increases, and high level of housing transactions continue(1). Perhaps things are back to normal.
Yet, if the experience of the last few years has taught us anything, it is that the old normal has gone forever. In its place is a new normal characterised by competition from Alternative Business Structures, clients demanding new fee structures and greater visibility over staffing and costs, deregulation opening more of our profession to new competition, technology delivering value to clients in new ways and challenging long-standing business models.
Appetite for growth is as voracious as ever. The much-debated high salaries for marketing directors demonstrate that our hunger for new clients is unabated; incentive schemes and promotion criteria continue to make new client acquisition a pivotal success measure second only to profit per partner.
In the new normal, is new client acquisition still the best strategy to achieve revenue growth? We don’t think so. In this paper, we explain why exploiting the rich, and, incredibly, largely unmined seam of existing clients has the potential to contribute substantial new revenue, deserving of equal status as the partner of new client acquisition.
IN THE NEW NORMAL, IS NEW CLIENT ACQUISITION STILL THE BEST STRATEGY TO ACHIEVE REVENUE GROWTH?
WE DON’T THINK SO.
THE LEGAL SERVICES MARKETS HAS A NEW NORMAL
2
Saïd Business School’s Novak Centre for Professional Service Firms recently published a paper in which they identified three types of legal panel review behaviour (2). At one extreme, client organisations are so entrenched with their law firms that they are “part of the family”. Reviews rarely consider economic or service performance, and are either very informal or perfunctory. Hunting for new clients among these organisations is virtually impossible because existing relationships are of paramount importance.
By contrast, other organisations have a fastidious approach to reviewing panel firms. They compile comprehensive criteria, rigorous standards and detailed budgets. In-depth research into candidate firms’ reputation, performance, technical expertise and experience provide the input for an objective, exhaustive assessment of each would-be panel member. They scrutinize fee models, challenge hourly rates and demand fixed and capped fees and discounts. And if that weren’t enough, these organisations expect higher standards of service performance.
WINNING NEW CLIENTS IS DIFFICULT, TIME CONSUMING AND EXPENSIVE
Unilever’s recent panel review process is a good example of this approach. If you satisfy the criteria, and are prepared to devote the time and expense to participating in this kind of process, then it is possible to break in. However, in the Unilever case, there are eight firms whose bids were not successful and who can count the cost at their leisure.
Yet the majority of client organisations fall into the middle ground. The Novak Centre research found that most organisations go with “the usual firm.” Acquiring new clients among this majority is therefore very difficult. And even when firms do break in it is often as an additional provider rather than a replacement. Which means that client spend is spread more thinly over a wider panel and achieved revenue can be much less than projected.
But there are far more positive reasons to put existing clients at the heart of your revenue growth strategy.
3
Existing clients hold significant growth potential. Client organisations invariably work with several law firms. They appoint different firms to handle particular specialisms; and even within a specialism, several firms can be appointed, perhaps motivated by the idea that competition will produce higher standards of service at lower cost.
This multi-provider approach is a potential source of revenue growth for law firms. Within a single specialism, what drives the share of work given to one firm as opposed to another? Although General Council and their teams may intend to balance work across the panel (or their usual providers if no formal panel exists), they will award work to firms that prove their consistent quality, attentiveness and desire to work with them. And although in-house council – or whoever is responsible for awarding work to law firms – are rigorously objective, they are also human. Non-rational (dare I say emotional?) influences, such as who is easier to work with, or who they trust more, play a real, if hidden, role. So knowing your client’s personal hot buttons can be every bit as important to revenue growth as subject expertise.
FIELDS OF GOLD UNDER YOUR FEET
Breaking into additional specialisms offers even greater growth potential - what is commonly referred to as cross-selling (although extending your work to an additional practice is only one form of cross-selling).
Winning work within another specialism can be difficult to achieve. You expect the client to evaluate your firm’s expertise and experience in detail, yet it’s a mistake to believe that this objective assessment is the only consideration. We saw earlier that non-rational evaluation is important when trying to increase your share of your existing specialism; it’s even more important when aiming to expand in to new ones. As a first step, law firms must admit that these non-rational criteria exist and have a profound effect on your ability to cross sell. Then, you need to know how to manage the relationships, politics, risks and fears that stand between you and increased revenue. It’s difficult – but still easier than acquiring a new client from scratch.
ALTHOUGH GENERAL COUNSEL ARE RIGOROUSLY OBJECTIVE,
THEY ARE ALSO HUMAN
OPPORTUNITIES EXIST TO INCREASE YOUR SHARE OF A GIVEN
SPECIALISM AND EXTEND INTO ADDITIONAL SPECIALISMS
4
Anyone interested in cricket will have despaired at the number of cheap wickets England conceded during the summer. Legal firms risk giving away cheap wickets if they don’t put enough effort into managing their existing clients.
In cricket, it’s easy to see when you’ve lost a wicket: a forlorn figure makes the long trudge back to the pavilion as the fielding side celebrate with at least some of the spectators. Losing a wicket is not always so clear-cut for law firms. The work can dry up gradually. The volume of projects falls, more work is handled by in-house counsel or other firms are handed work that should have gone to you. If the trend isn’t identified and addressed quickly, any loss of work may be irrevocable, along with the opportunity to expand in to other practice areas.
HOLD ON TO YOUR VALUABLES
Fee earners may not be in the right place to see the full picture of what is happening, so the insidious encroachment by competitors goes unnoticed and uncontested.
Even if competitors do not openly pursue your business, clients may award them a greater volume of work because they have lifted their standards, or because the ties of trust and personal relationship are stronger.
On the other hand, your firm can seize the initiative. Close, proactive client management that delivers expertise and quality, and that methodically builds trust, creates a strong preference and a source of long-term competitive advantage.
This type of client management complements a firm’s marketing activities, which together generating demand at market, sector and individual client levels.
ON THE OTHER HAND, SEIZE THE INITIATIVE. FIRMS THAT PROVIDE
CLOSE, PROACTIVE CLIENT MANAGEMENT THAT DELIVERS QUALITY,
EXPERTISE, AND THAT METHODICALLY BUILDS TRUST, WILL CREATE FOR
THEMSELVES A STRONG PREFERENCE AND A SOURCE OF LONG-TERM
COMPETITIVE ADVANTAGE.
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It’s not surprising. The law is complicated, often open to interpretation; the quality of legal services can be difficult to judge, even for extremely competent and professional General Council. In the absence of objective benchmarks, it is no wonder that a law firm’s reputation and the trustworthiness of its lawyers are so central to an organisation’s decisions regarding which law firms to use.
Lawyers can establish some elements of trust immediately. Talk about an issue knowledgably, show an understanding of the commercial implications and ask the right questions and credibility is enhanced. Get this wrong and credibility – and trust – are destroyed.
Other elements, such as consistent reliability, a deep understanding of all aspects of the client’s business, deep personal relationships that go beyond the commercial veneer, and repeatedly putting client interests above your own, can take longer to build. And once you have built them, these become your most valuable assets in your relationship with your client – far more valuable than your subject expertise.
USE YOUR ASSETS TO LEVERAGE GROWTH
So why do so many firms squander these assets by failing to use them to build business with existing clients? With just about any other resource, such profligacy would be punished – how hard do partners come down on fee earners who waste time rather than earn fees? In practice, law firms are already being punished by losing revenue to competitors.
Existing relationships are a gold mine of intelligence. In firms where fee earners communicate directly with the client, they can unearth all manner of important information that can help their firms provide a better service, and potentially save their client substantial sums by nipping problems in the bud. At the very least, intelligence can help firms identify and anticipate opportunities to provide additional client value and increase revenue.
Trusting relationships aren’t a client’s first selection criteria. They are the crucial difference when there is nothing to choose between competing firms on quality, price, accessibility and speed. And there often isn’t much to choose between them.
WHAT DO CLIENTS VALUE?
According to the 2014 Report on the State of the Legal Market(3), they want quality, good prices and to be understood by their lawyers. They also want a good working relationship.
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His reaction is not uncommon. Many partners concentrate only on the fee earning work at hand. They live in a kind of vacuum. Which, given the requirement for quality, speed and efficiency is understandable.
And the quicker this piece of work is completed, the sooner they can move on to the next . Surely this is the best way to maximise revenue for the practice?
Perhaps. But not the for the firm.
Firms that pass up these opportunities for incremental revenue are just helping their competitors increase theirs. With all the challenges facing the industry, this hardly makes sense.
There’s another problem too. Self-orientation is the biggest killer of trust in a business relationship. When lawyers are so wrapped up in their own world that they ignore their client’s needs, they are epitomising self-orientation. Snip by tiny snip, these lawyers unpick the stitching that holds their firm and the client together.
An internal, practice focused profession serving a market that increasingly demands client focus.
LIFT UP YOUR HEAD OCCASIONALLY
YOU MIGHT JUST SEE A CLIENT TO FOCUSING ON
RECENTLY, A FRIEND OF MINE, A PARTNER IS A LARGE REGIONAL LAW
FIRM, WAS BEMOANING HIS CLIENTS FOR TALKING TO HIM ABOUT
ISSUES THAT FELL OUTSIDE HIS PRACTICE. “CAN’T THEY SEE I’M UP TO
MY EYES IN IT? IT’S BAD ENOUGH TRYING TO HIT THEIR DEADLINES
WITHOUT ALL THESE DISTRACTIONS.”
I asked him if his firm had the expertise to do the work; he told me that
he was sure they did.
I suggested that he could have referred the inquiry to the partner from
the appropriate practice. My friend looked confused.
BE MORE FOCUSED ON YOUR CURRENT CLIENTS.
IT WILL PAY DIVIDENDS IN WHOLE-FIRM REVENUE GROWTH.
7
Law firms should refocus their business develop strategy to give equal weight to growing revenue in existing clients.
Revenue growth remains critical for law firms as a primary source of increased profit per partner. Achieving revenue growth is increasingly difficult in a market where a new normal - deregulation, client organisations in the driving seat, pressure on fees – means acquiring new clients is harder than ever.
Against this back drop, law firms are failing to leverage one of their most valuable assets – the trusting relationships built up with existing clients – because they do not concentrate sufficient effort on increasing their business with them.
Worse, by ignoring client needs that fall outside their practice, partners are losing revenue for the firm and weakening relationships.
The consequence: law firms are choosing to overlook significant sources of new revenue that they could secure more quickly and at lower cost than from new client acquisition alone.
The result: get this right and law firms achieve higher revenue at lower cost. And we all know what that means.
THE RESULT: HIGHER REVENUE AT LOWER COST
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NOTES
This article is one in a series designed to help professional service firms improve their business development.
To obtain other titles, please contact Inspired Client Management at
References
(1) The Law Society Gazette, 28th August 2014
(2) “Panel Games: How Client Organisations Pick Their Legal Advisors” University of Oxford Novak Druce Centre for Professional Service Firms, Saïd Business School 2011
(3) “2014 Report on the State of the Legal Market” Peer Monitor, Thomson Reuters
