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June 05, 2007

If Your Clients Don't Add Value to Your Legal Services Business...Fire Them

Very often in the new days of solo practice, business can actually grow too fast, even exponentially.  There is a giddy excitement the new lawyer feels knowing she is even getting clients at all!  Marketing efforts, even if not great, seem to be bearing fruit and she is stunned that she is actually earning money quicker then she expected.  She certainly doesn't want to turn away a client unless they are screaming, "I'm a lunatic" or "I'm going to make you spend endless hours on my case and not pay you."

What the new lawyer loses sight of is: "Am I getting the client I want to get?"  Before she knows it she's stopped 'selecting' the clients she wants to serve who fit her 'ideal client' but is taking every client that wants to retain her.  Her business model has been tossed and her livelihood is being determined by the clients who are choosing her rather than her choosing the clients she wants to serve and who support her business model. 

When this subtle shift happens the new lawyer inevitably has no time to seek out and serve his defined 'ideal client' because he is catering to anyone who walks through the door with some money.  Why?  Because he now has increased costs for running his business and/or upgraded his personal living expenses.  He has stopped devoting time to his marketing efforts. He has lost sight of his marketing goal.  The tail is now wagging the dog.

Being client-focused, which is critical, does not mean expending all energies on all clients, especially those clients that add no value to the business.   

In a recent article in Kiplingers there is a very important discussion on customers (clients) that every solo must read. It defines four types of clients, those who bring value to your legal practice and those who don't and why you must 'fire' clients that are detractors.

Customers are the lifeblood of any organization and the heart of the demand-driven economy. Scores of books have been written about the importance of customers, ways to provide value to them, and the need for a company to be customer-oriented. Senior executives in all industries readily agree that customers are critical to the survival of a firm, that customers are their most valuable asset, and that their entire organization must be customer-centric.

Businesses often make one of two big mistakes when it comes to customers: They either pay too little attention and risk losing them, or they work too hard at trying to keep the wrong ones. The key is learning about the customers that matter the most to your business and making sure they are happy.

Lawyers are notorious for not cultivating their existing client base.  There is no follow-up once the matter has concluded because no time has been allotted for this function. They let this 'bird in the hand' relationship fly away. This is a critical and costly mistake.  You can't afford NOT to follow up.

When you are a solo it is undeniably challenging to fully understand who your ideal client is, develop a marketing strategy to attract this ideal client and then implement that strategy on a systematic basis, especially when you are buried under legal work which is the service for which you are being paid.  But when done correctly and methodically your marketing strategies become second nature and can be as comfortable as breathing.

Sunil Gupta and Bernard Schmitt, both professors and authors, further write:

Rather than spread itself too thin by treating all customers the same, a company should identify its different types of customers and treat each group appropriately. Since Gupta and Schmitt's goal is to help a business create a customer-centric organization, some of their advice -- like "firing" some customers who are too costly to maintain -- is startling. "This may sound counterintuitive -- be customer-focused, but don't invest in some customers," they write. "But a study of U.S. banks in the early '90s found that only 30% of customers were profitable over the long run -- 70% of customers destroyed value!"

To become customer-focused, a company needs to be able to deliver the right customer experience. Growing customer demand comes from a focus not just on products, but on the total experience. While providing value to the customer, companies also need to be able to measure the value they receive from their customers -- customer profitability -- and utilize it in decision making. Companies thus need to master two sides of customer value. The first is to provide value to their customer -- which can be managed strategically through customer experience management. The second is to get value from their customer -- which can be measured strategically through customer profitability.

One concept solo practitioners should consider is categorizing their current clients in order to determine those who should receive their full 'customer-service' attention and those who should not.  Do not misconstrue 'full attention' with a lawyer's obligations under the Rules of Professional Conduct.  This concept is in relationship to 'extra value' meant to extract further retained legal work from existing valued clients as well as generate referrals of the same caliber client as those identified who provide value to the business. Gupta and Schmitt define customers as follows:

Star Customers receive high value from a firm's products and services and provide high value in the form of high margins, loyalty, and retention. Companies should identify and build on this type of customer.

The Lost Cause is the opposite of the Star Customer and does not get much value from firm's products and services. If they provide any marginal value to the firm, it may be to allow for economies of scale. Otherwise, companies should consider reducing investment in them. This may sound counterintuitive -- be customer-focused, but don't invest in some customers! So when a company finds their own "Lost Cause" customers, they need to convert them to profitable customers or else "fire" them.

Vulnerable Customers provide high value to a firm but do not get a lot of value from firm's services. These may be new large customers who are not receiving a good customer experience, or longstanding customers being taken for granted and only sticking around from inertia. This is a dangerous situation and Vulnerable customers are prone to defection unless the firm invests in better products, additional services, and a better customer experience. This investment should be targeted, in the way that airlines and casinos have long given preferential treatment to better customers. Charles Schwab call centers have been designed so that their very best customers never wait longer than 15 seconds, while others could wait up to 10 minutes.

Free Riders get superior value from a firm's products and services but provide little value. For a supermarket, the Free Rider is the customer who buys only the promotional sales items that are priced to get traffic in the door, but never picks up anything else while they are there. The aim for companies is to reduce service or to raise prices for free riders; this will increase the risk of losing them, but also enhance their value to the firm.

It is important that practitioners start to assess who their ideal client is and how this ideal client adds value to the bottom line.  They must create marketing campaigns geared towards attracting more of these ideal clients.  The solo should not behave as a less sophisticated business person.  If the goal is an enjoyable and profitable business then this marketing strategy is not optional. 

One lawyer who mentored me in my early years said, "there are a lot of barking dogs out there.  You can't feed them all. But the ones you feed, you should feed well."


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