Or, recognizing successful client relationship management.
[This is another in our series by Janet Stanton, Partner, Adam Smith, Esq.]
Winning a new client for the firm—there’s little that can match that for excitement, sense of accomplishment and visible contribution to the firm. More so if the client is big or prestigious. A pitch is often a hard-fought battle against many worthy foes. There are numerable, maddening unknowns in pitching a new client: which lawyers at which levels should be presented? What’s the optimal pricing? What services will distinguish your firm from the others?, etc., etc.
But now you’ve done it – landed a big new client for the firm. Congratulations. Crack open the champagne. Get your photo with the pitch team in the firm’s internal newsletter. Read the blurbs that the PR group has placed in the press.
Now, fast forward a few years.
What is the current state of the relationship with that client? Is it still on the firm’s roster? BTI has reported that on average, in-house counsel fire two of their primary law firms each year. Perhaps revenue has frittered away to life-support levels? Are you getting assignments less and less frequently or those that you do get are more commoditized in nature? Studies by LexisNexis and Redwood have found that the annual attrition of existing clients’ hours averages -15%; so that business you fought so hard for just a few years ago may be long gone.
Or is the relationship on a more positive trajectory? Has the firm’s revenue from this client continued to grow? Do you have a larger share of their legal wallet? Have you added practice areas or expanded the geography where you serve the client? Are you receiving the client’s higher-end matters? If yes to any or all of these your successes should be recognized by the firm – beyond getting a pat on the back or a hearty “good job!.”
Several studies have confirmed what seems to be intuitive. Law firms with more robust relationships with clients tend hold onto those clients longer; they suffer less client attrition. Less client attrition leads to a more stable, sustainable firm. The benefits of enhanced stability accrue across the firm. There’s the ability to more effectively plan for and allocate the firm’s not-infinite resources.
And, importantly enhanced client retention makes the firm less dependent upon the uncertainties, expense and disruption that inevitably surround pitching new clients. Winning business from a new client is estimated to be 10x more expensive than adding the same amount of growth from current clients. Therefore, growth from current clients is more profitable – and more profitable sooner – than gains from landing new clients. Firms with greater client continuity can be more discriminating about which new clients they do choose to go after – those with a better likelihood of success and compatibility with the firm. You will always need to pitch new clients – that will never go away, but a more stable roster of clients will provide your firm more choices and the advantage of pitching more strategically and selectively.
Higher client retention is correlated with the engagement of more than one practice area and more partners involved in the relationship as shown in the following, provided by Redwood’s Think Tank. The first shows the attrition rate, as a percentage of clients (left axis) mapped against the number of areas of law the client uses the firm for (bottom axis).
The second again shows client attrition mapped against the number of partners who give that client at least 5% of their time during a given year:
It may sound tautological, but lower client attrition is also associated with the longevity of the relationship. All of these are good for the firm; they also appear to be good for and sought by clients.