Do You Know Who - and Where - Your Biggest Clients Are?

03/01/2006
Reprinted from:

Published on 3/06

In the marketing section of this issue I write on the rewards and perils for lawyers who use the Internet, in the form of blogging, as a marketing tool. Certainly having an active blog, one that's ranked highly by the search engines and that other bloggers link to, can bring in new clients you might never otherwise have reached. But, in addition to the blogging caveats I point out, one is fundamental to any marketing: don't focus so hard on trying to get new clients that you lose sight of the biggest ones you already have.

Law firms often seem compelled to focus their limited marketing time and resources on where the money is not – creating RFPs, newsletters, seminars (and blog posts), all aimed at prospective clients, most of whom will not pan out. To be sure, natural attrition and other factors mandate that a firm keep looking for new client opportunities. But it's far more important to know who your biggest clients are now, and to work at keeping them. If a major client defects or fades away, it represents both a loss of revenue and an increase in costs – the time and resources to get new business that makes up for the client who is no longer there.

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 competency, 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. 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. Firms can be crippled or even forced to close when the fees from a large client fail to continue – whether due to dissatisfaction, change of billing attorney, merger, recession, or other unanticipated problems.

Some firms believe that having numerous small clients leads 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.

Incredibly, the loss of a large client through the departure of the lawyer who services them often is due to a single, eminently predictable event: partner retirement, particularly when the partner is the firm's rainmaker. Typically, the next generation of partners has been accustomed to inheriting the rainmaker's business and has no marketing skills. That's why I recommend that firms service top 20 clients with teams (not just a single rainmaker), and cross-sell between teams according to a strategic plan. Train lawyers to go after target businesses according to a personal marketing plan, and give bonuses to those who get results. Hire associates with business development skills, and don't make them partners unless they have a book of business. Require management committee members to be rainmakers. Steps like these institutionalize the process of marketing, so that the firm doesn't face sudden disaster from loss of a major client.

In marketing, as in life, failure to plan is the same as planning to fail.

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