Boost Your Firm's Profitability
Published on June 19, 2012
The July/August Law Firm Profitability issue of Law Practice is available on the LPM Section’s website, and you don’t have to be a section member to take a look. With The New Normal: Restoring Profitability by Arthur C. Greene as the cover feature and articles like 15 Proven Profitability Techniques and Increase Profits by Decreasing Costs, this one is a “must read.”
You can also find my Simple Steps column on improving profitability by firing some clients there or, if you’re too lazy to click through, just read it here.
READY, AIM… FIRE!
“The client from hell is on line three.”
The receptionist didn’t actually use those words as she announced the caller—but I knew she was thinking them because I was, too. My heart sank as I reached out to tap the blinking button that would connect me, tender ear to screaming voice, with one of several clients I just dreaded dealing with.
I’m sure you have more than a few of these clients: the ones who call multiple times a day, demand to see you without an appointment, berate you or your staff members (often without cause) and simply cannot accept any advice you offer unless it gets them exactly what, how and when they want it. They sap your time, energy and spirit, making it difficult for you to get a good result for them and making it difficult for you to provide quality legal services to your other clients.
Or, maybe you don’t have a handful of “clients from hell” but you feel as if you have a whole flock of clients who are, not to put too fine a point on it, marginal. These are the ones who are always unhappy, who generate low fees for the amount of work involved, or who bring in types of work outside your expertise or that you just don’t really enjoy. In their own way, they can make you and your staff feel that practicing law is a miserable way to spend an otherwise perfectly good day.
A Radical Solution
So what’s a lawyer—who has to make a living, after all—to do?
Perhaps it’s just one more sign that the economic situation in our country seems to be getting a little better, but I have a radical proposal: Fire some clients. You’ll be happier, your staff will be happier, and your bottom line might even get happier, too. It may be hard to believe that you can raise revenue by getting rid of clients, but just as having a closet full of shoes doesn’t help if none of them match your outfit, being too busy working for the wrong clients can really hold a firm back, both financially and in terms of quality of life.
I’m not suggesting that you start cutting clients willy-nilly, or even fire the most irritating ones right off the bat. Instead, consider grading each client on a variety of factors, determine which clients produce the majority of your income and then eliminate the ones in the bottom tier who produce major stress but little income.
How does one go about figuring out which clients are really at the bottom of the barrel and should be fired?
Rate your clients. In their book How Good Attorneys Become Great Rainmakers, Mark Powers and Shawn McNalis describe what they call the client scorecard. This is a tool that helps lawyers determine which fish to keep and which to throw back for someone else to catch.
Clients are rated on five categories:
- Level of cooperation
- How enjoyable their type of work is
- How profitable their work is
- Their relative ability to pay legal fees
- Whether they were referred to you by a good source whom you need to keep happy
Powers and McNalis suggest rating clients as A through D, based on where they fall within a matrix of these traits, but you could also assign a numerical value to each trait. For example, clients at the top of any category receive 4 points, while difficult clients, those whose work is outside your area of expertise or who cannot pay you, receive only 1 point for each trait. A final score of 20 would indicate a great client, a score of at least 15 would represent a reasonably good client, and a score of 10 or less would point out a marginal or poor client. The idea is to bring some information and logic to your subjective feelings about working with each client, and to help you to be able to divide your clients into three or four categories based on profitability and how desirable they are to work with.
Fire some clients. By this I don’t mean that you should print up a mass of pink slips and start handing them out to clients. As satisfying as that might be, attorneys are constrained by the rules of professional conduct from simply abandoning unpleasant, uncooperative or unprofitable clients. Instead, begin by reviewing the file of each client who falls into the bottom third of your rankings and decide whether you can ethically terminate the engagement.
If termination is possible, prepare the file and call the client for an office visit to deliver the news, making sure to provide all information necessary to warn the client about impending deadlines and the need to find other counsel, and to position the client to be able to do so. If you can’t ethically terminate the relationship, work out a strategy to handle the matter as quickly as possible, and if appropriate, set a reminder in your conflict of interest system to carefully screen any future matter before agreeing to work for this client again. Establish a goal of working through all marginal matters within a reasonable stated period of time, and check your progress periodically to make sure you are staying on track.
Envision a better client and practice. Take the information you’ve gathered to develop a picture of your perfect practice and your perfect client for each type of matter you’d ideally like to handle. Which types of matters do you find most enjoyable and which of those provides the best compensation for the effort involved? Are there legal needs within your community that are not being met? If so, are you qualified, or could you become qualified, to handle them? How could you adopt technology to help streamline the delivery of legal services, whether it’s client communications, document generation, evidence review or trial prep? Determine factors such as age, gender, education and income level for your perfect client. Where are these people found, and how could you best reach them, ethically, with information about your practice and the legal services you provide? This information will become the basis of the marketing plan you create to help make your perfect practice a reality.
Renew your client development efforts. As you begin to work your way out of your marginal and undesirable clients, apply the same standards you’ve developed for current clients to all potential clients. The new matter intake and review process is critical to helping you move your practice forward. You want to make sure that you don’t simply replace one set of problematic clients with another.
Use the time and energy freed up by getting rid of the clients who took your time but didn’t really add to your practice satisfaction or bottom line to implement client development efforts aimed at great clients and matters.
And before you know it, you won’t dread the client who’s holding on line three.