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Focus on the clients and the markets. It is that simple. While much emphasis has been given to internal firm matters—structure into practice groups, build the Web site, create the marketing plans, analyze the year-to-date work in progress (WIP), and billables—the same rigor has not been applied to three very basic revenue-focused business principles: client retention (keeping existing clients), client growth (growing share of wallet from existing clients), and finding new clients (analyzing where the firm is strong and going after additional market share). We call this focus SAM–Legal (Strategic Account Management). SAM has long been a process that drives just about every business. Just ask your firm's clients if they have a major account or key account focus and virtually all of them can tell you about it.
One would think with all the emphasis on marketing these days that firms would be clear about where their revenue comes from, and yet we hear again and again, "Last year was a good year," or "We did better than we expected," or "It was our best year yet." But we are also hearing, "We're unsure about this year though," or "We're already starting to see a slowdown this year," or "We aren't sure where our business will end up this year." This article will focus squarely on taking charge of the firm's future and adding some octane to the revenue growth engine of the firm—the clients and prospects.
1. Analyze the client base—start looking at the clients and stop looking in the mirror.
Rather than taking on the annual task of looking at the timekeepers in the firm and multiplying their expected billable hours by their rates to come up with this year's budget or revenue goal, review where the revenue came from. Here's how:
Take a look at the last five years of revenue. Every firm knows which timekeepers are the rainmakers. But, viewing the firm's business by timekeeper is shortsighted and does not promote either firm or team. That is not to suggest ignoring the salespeople of the firm, but rather, taking a view from another angle—it will be surprising what you might see. Where did 90 percent of the revenue come from each year? Create a list of clients by year. Review the list and sort clients as follows: one-year clients, two-year clients, three-year clients, four-year clients, five-year clients.
For the time being, try not to divert your review process by thinking, "This was only a one-time litigation deal we had with this client due to a conflict at their usual firm." Forget about why the client is a client and focus on the task at hand.
Next, visit each client's Web site (yes, every single client site individually) and write on your spreadsheet next to the client name the type of business (industry) the client represents (according to the client's own Web site). Don't worry about SIC codes or any other marketing codes—they are useless for law firms unless firms capture and code this information on the intake side. Plus, we are not talking about a lot of clients in most cases. To make short work of this phase of the task, ask your library team or a group of secretaries to help out—divide and conquer. Set a deadline of no more than a few days so this phase is complete and you can move on with the analysis and current year forecast development. If you are part of the library team at your firm, what we are recommending so far is a great task for your team to initiate (working with your finance group, of course) to tie yourselves to the revenue side of the firm.
Last, organize all of the clients that fit into specific categories by the client's line of business. For example, you could take a broad category, like manufacturing, or you could make it a narrow segment by defining the category as medical device manufacturers. The broad category is called an industry and the narrow view is called an industry segment. It is best to start with the industries and then, if appropriate, focus on the segments. So, going back to our example, of the 7,000 clients of the firm, 200 clients made up 84 percent of the firm's revenue and split out like this:
- 32 percent medical device companies (life sciences industry; medical device segment)
- 27 percent hospitals (health care industry; hospital segment)
- 23 percent manufacturing firms (e.g., 3M)
- 7 percent oil and gas companies (energy industry; oil and gas segment)
- 11 percent small market segments of 1–3 percent each.
The focus would be on those 200 clients. The industry focus will be medical device companies, hospitals, manufacturing firms, and oil and gas companies.
2. The financial picture. Show them the money.
Now that there is clarity around the revenue and the clients that make up the largest portion of the firm's revenue, create a summary (maybe using PowerPoint to be most effective) for presentation to the firm's members and senior operations team. Using a pie chart to display the specific markets and revenue percentages from those markets will be most helpful in communicating the message across the firm. Show each market (industry/industry sector) and list the clients within those markets that make up the revenue percentage.
Next, create a pipeline report for clients down to the individual partner level. Work in progress (WIP) and pipeline reporting show the potential, and focus firm marketing and business development efforts on bringing in the business from the most likely prospects and clients. Begin the pipeline report by showing the firm's existing clients and anticipating how much revenue the clients will generate for the current/upcoming year. The gap between the firm's anticipated budget/annual goal and the anticipated income from existing clients is what will need to be added through expanding existing client opportunities or obtaining new business from new clients.
This approach is a fairly common and straightforward method for revenue forecasting in business. Law firms are now just beginning to think about revenue from this standpoint. This method has also helped firms with significant individual client practices such as estate planning, divorce, and DUI.
3. Take a mile-high view. You can see for miles and miles and miles from the top down.
Now that the firm is aware of its clients from the revenue side, and the revenue pipeline report is up-to-date, the last big piece of this SAM strategy is to include the clients in the process. Create a plan to meet with each client to discuss the client's current year strategy for growth and, based on that input, try to anticipate the client's needs for legal services. This positions the firm as a partner with the client as opposed to a vendor for legal services who reacts to the client's legal needs. There is a big difference, and it plays out in terms of client wallet share.
For new client acquisition planning, review the market's business journals and other market intelligence and identify the clients and prospects in the firm's geographic markets. For example, if we look at medical device companies as a market, and we use regional business journal reports to identify the top 100 medical device companies in a given market, that market becomes our potential pool of prospects. Compare that to the number of companies that are clients. For example, assuming the firm has 15 of the top 100 medical device companies, then the market share is 15 percent and the prospective market share is 85 percent. The marketing and business development efforts can be geared to retaining and growing the 15 percent existing share and capturing an additional portion of the 85 percent share.
By focusing efforts on the client side of the business, and by carefully planning out the firm's retention and growth strategies, firms can save significant dollars in marketing and business development. Random acts of marketing (unfocused marketing and business development efforts) require a lot of support in terms of a firm's financial resources as well as the cost of marketing and business development professionals.
In summary, the better managed the firm's revenue-generating efforts are in any economy, the better the results the firm will experience. It is especially true in a competitive and economically challenged market to be informed (understand the client side of the revenue generated), prepared (plan for client retention and client growth so the firm does not lose ground), and focused (be clear about how the various resources of the firm will be used to support increased share of wallet and market). Following these steps will provide long-term results for the care and feeding of the firm's other valuable resources—its talent. It is not so bad knowing where the revenue will be coming from instead of hoping everyone meets their arbitrary billable goals. Focus the efforts and reap the rewards. Turn a down economy into an opportunity for growth.
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