Two Basic Business Principles to Improve Your Practice Profits

It is an established axiom of business that there are only four ways to increase profits:

  1. To sell more to your existing clients.
  2. To increase the size of your client base by acquiring new ones.
  3. To increase your prices more than costs.
  4. To reduce your costs (outside the scope of this article).

This is as true for law practices as any other form of business. While marketing has traditionally concentrated on acquiring new work, I believe that profits can usually be increased faster and more cost-efficiently by concentrating on items 1 and 3. The good news is that the strategy I suggest will also produce benefits in client pool size and costs in the longer term.

The strategy involves identifying prime (“A”) clients and concentrating your marketing and service delivery on them and culling out your worst (“D”) clients. One could indulge in long and possibly sanctimonious arguments about the ethics of this but the simple fact is if you don’t make money you won’t survive to serve any clients.

The reason that this strategy works is founded on two basic business principles:

The Pareto principle

There is a well-known economic principle that 80% of your profit is earned from 20% or so of your clients. (Conversely, 20% of your clients are responsible for 80% of your headaches!) Don’t believe it? Just think about your best client and your worst one. The Pareto principle applies in law practice as much as in any business.

Marketing Costs

To acquire a worthwhile new client typically at least costs 20% of the first matter’s fee. Most firms spend both money (a little) and time (a lot) on marketing. This makes finding new clients an expensive business. It’s like fishing. You need to account for the time spent because of the opportunities you miss. Not catching anything as well as reeling in the catch. The common estimate is that it costs between 60% and 600% more to sell to a new customer than an existing one. With typical gross profit margins (including partner time) under 50%, it means a “first-time” client is typically half as profitable as an established one.

Here’s How To Apply Them

Grade your clients

Sit down with your client list and grade them, as to whether they are “A” clients, “B” clients, “C” clients and “D” clients.

Establish a client care system that ensures the “A” clients get great service, with a monthly phone call from their contact lawyer, tidbits of interest to them culled from magazines and newspapers, seminar invitations, calls returned straight away and so on. The idea is to get them involved, part of your team. And why not? “A” clients are as valuable to you as your partners are. You can even use them as sounding boards or mentors for your practice. In this way you build trust, not just in your expertise, but in you as a person.

Ask “A” clients for referrals. Chances are they mix with a number of other potential “A” clients. “A” clients are also there to be cross-sold” other services – so cross-sell. This takes time. Where will it come from? Read on!

“B” and “C” clients

“B” and “C” clients need care. The idea is to lift “B’s” to “A’s” and “C’s” to “B’s”. Identify the criteria on which these clients fail. Can they be brought around? For example, if a client is price resistant it may be that they just don’t understand what work was done. Twenty minutes spent talking through the bill may well save two hours argument afterward and possibly a complaint. It may be that the client hates paying for anything. If so, you aren’t going to change them and they’ll never be an “A” client: indeed, they’re likely to be down at the pub telling all and sundry that they got you to reduce your fee! Give them an appropriate level of care, but look to move them up the scale.

The good news is that, in the legal profession, standards of client care that would be very poor in many industries are near the top of the tree.

“D” clients

Get rid of your “D” clients. This doesn’t mean closing their files in midstream, but making sure you don’t accept new matters from poor clients and setting up procedures to ensure you don’t take on new “D” clients They are a pain to deal with, cause most of your aggravation and probably make you no profit. The time you save not dealing with “D” clients will be more than that spent uplifting your relationship with your “A” clients, who pay, are profitable, don’t moan etc. etc.

Implications for You

Implementing this strategy is easy. Getting the most out of it is more challenging. The first requirement is to undertake the grading process fairly and dispassionately and then form a plan to dispose of “D” clients.

Set up a system of client vetting. What are they like? Will they/Can they pay? (Do a credit check). Are they likable? You will find that some lawyers take on more “D” clients than others. Train them or let someone else do the first interview.

Set up appropriate systems to ensure your “D” and “C” clients and lawyers have their weaknesses identified and addressed (again this may vary by lawyer).

Take corrective action. For example, one lawyer may under-recover. Is it because he under-bills, disliking confrontation or lacking confidence, takes on the wrong clients, or because he is inefficient? Find the reasons.

Update your list

Update “B” and “C” clients by identifying the criteria that can be improved and set to work. For example, suppose a client is a pain because they telephone daily, interrupting your work. You can get them in and explain the practical problems this causes and or even agree to call them twice a week instead at times convenient for you. Think! Be creative, solve.

Decide on a regime to apply to “A” clients to ensure they get truly excellent service, are regularly trawled for work and referrals, and are involved in your firm in a way that befits their importance. Why not, for example, invite them to your Christmas party? Or even form a mentoring group of clients who form an “external advice committee.” No one is better placed to advise on your service the users!

The biggest implications for the firm are in training. You will need to ensure that all staff and partners “get the client care message.” You will need to ensure that people dealing with clients are trained to become “person cultured” not “matter centered,” and then learn to cross-sell the firm’s services. You will need (in many cases) to institute training in person-to-person skills, an area in which the profession is traditionally poor. The biggest single problem in this type of strategy is getting the lawyer’s point of focus to be the client as a person, not the client’s matter.

Efficient client grading allows you to work less hard, have less stress (and complaints), have smaller numbers of files and to make more profits.

Joe Reevy, Legal RSS

Talk to Legal RSS about:

Legal articles for your website, newsletters and social media UK court updates for staff or clients A powerful content marketing platform

LegalRSS logo legal articles, legal copywriting and uk court updates for law firms

Legal RSS

The UK’s leading supplier of news content for law firms’ websites, newsletters and social media channels helps you demonstrate credibility and authority with topical and relevant news. Their unique, bespoke smartphone app adds to your engagement with clients and prospects.

Recent Calico articles on Marketing and Business Development:

Talk to the Author or request help with any aspect of your firm’s marketing