Bigger clients are better... if you keep them in proper perspective

Published on: 
Published on 12/5/05

A statistical premise called the Pareto Principle holds that, over time, most results are produced by only a few causes, generally in a proportion of 80 to 20.

When applied to law-firm marketing, this produces the conventional wisdom that 80 percent of a typical firm's revenue is produced by 20 percent of its clients -- the large, heavy-hitters.

It follows logically that such clients should be the focus of your business development efforts. Every firm should know in exact detail which attorneys do what for its largest clients, how profitable that work is for the firm, and what opportunities exist to get more work.

That means you should know all the essentials of your top clients. Unfortunately, many lawyers never take the time, or have the business literacy, to do a little digging and try to understand their clients' businesses.

Clients will expect the legal advice they receive to reflect a comprehension of their business. You don't need to be an accountant, but for top clients you should know:

  • What are their products and services?
  • Who do they provide them to?
  • What are their annual revenues and profitability?
  • How many employees do they have, and where are they located?

If you cannot answer these questions about a major client, the client will soon realize and likely resent it. And you could lose a major revenue producer.

The loss of a large client is such a major risk that you may want to consider one of the most important axioms of business: Make sure no single client exceeds 10 percent of your total revenue. Thus, if any one client "forgets" to pay you, or even leaves, the loss won't be so hard to handle.

I have seen too many firms focus on a very few, larger clients and be severely damaged when the fees from that client fail to continue -- from dissatisfaction, change of billing attorney, merger, recession or other unanticipated problems.

Some firms believe that having numerous small clients lead to greater revenue stability. However, studies suggest that small clients disproportionately drain the resources of law firms while providing a disproportionately small contribution to firm profits.

I am all in favor of seeking larger clients with more money and more interesting challenges. This effort, however, must be balanced to assure that the firm doesn't wind up with only a few clients, large though they may be, who put the firm at risk if they should leave.

You may be willing to accept this risk for the short-term with the intent of getting more clients so that the percentage allocation to the "larger" client is reduced while maintaining the billings at the same level for the client.

If so, make no long-term capital or other expenditures at the behest of larger clients without some type of assurance that their business will stay with you until at least the amortization for the new expenditure is completed. Otherwise a long-term strategy based exclusively on fewer, larger clients will almost always lead to disaster.

This Coach’s Corner Article is listed under the following categories:

This Coach’s Corner Article is categorized for the following audience(s):