Are you “Squeezing the Orange”?
By this I mean, are you relying on your people charging more hours to your clients as your main strategy to grow your revenue?
I call this strategy “Squeezing the Orange”.
Do you prepare your annual revenue budget based on this formula:
Number of Full Time Equivalent fee earners x available hours x productivity target x charge rate x recovery rate?
If so, the only way you can grow your revenue is by having more people with more hours to charge. If you don’t employ more fee earners, or you lose some fee earners, you cap your revenue.
Eventually, after you have been “Squeezing the Orange” for too long, it will run out of juice. Charging hours is an extremely important part of your revenue strategy, but like a jigsaw puzzle, it is only part of the overall picture.
The revenue growth formula for a law firm should be:
(Number of existing clients + new clients) x the number of times a client works with you in a year x the average sale x margin
“Squeezing the Orange” can only impact margin. “Squeezing the Orange” is an efficiency strategy. You can only improve margin by being more efficient and/or increasing your price.
There are 5 key revenue strategies that you need to focus on for your revenue growth formula. I call these the 5 Dimensional Revenue Strategy:
- Product – what your core product/service offering is
- Marketing – how you create leads and drive brand awareness
- Sales – converting your opportunities to revenue
- Production & Delivery – doing the work and delivering it to your client (this is where you “Squeeze the Orange”. This is one component of margin management.
- Client Relationship Management – managing the relationship (client experience) so that they buy and buy again.
Each of the 5 Dimensional Revenue Strategies drives different components of the Revenue Growth Formula. For example, marketing and sales drives client numbers, transaction frequency and average sale, whilst sales also drives margin. Margin is also driven by your production and delivery strategy, but your production and delivery strategy does not drive any other component.
To drive revenue growth in your law firm you should:
- Define the Top 3-5 core products/service offerings. TIP: Focus on those offerings that apply to the majority of your clients.
- Prepare/produce a client list by partner/author of all clients including those clients that there has not been any activity with in the last 3 years. TIP: no exceptions, this is the first step to creating a revenue focussed data base.
- Prepare/produce a matrix of clients by product/service offering. TIP: this will show you the immense opportunity that exists within your existing clients.
- Choose the first product/service offering to market and sell to clients. TIP: select the one that you love doing the most to make sure you enjoy it.
- Develop and implement a marketing strategy to educate clients around the product/service offering. TIP: clients don’t know what they don’t know. Don’t re-judge what you think the client needs because you don’t know.
- Create and implement a structured sales strategy to provide the product/service offering to client. TIP: the most effective strategy is to call your clients and book in a meeting to catch up and discuss their needs. Your instructions may not be in relation to your focused sales strategy, they might just want you to do something else for them.
- Engage the client, bill the client, do the work, collect the cash TIP: this can only happen once the client has given you instruction. Think about this step last, as it can’t happen until you have implemented the first 6.
By applying this approach to your revenue strategy, you will stop “Squeezing the Orange”, you will recognise its place in the revenue formula and cease to be totally reliant on charging hours.
For every law firm I offer a free Profit & Cash Flow Improvement Potential Review using your numbers. We will meet and discuss the financial position of your business, and discuss strategies that you can implement to drive improvement. I will also provide you with a report for you to refer to. Just click on firstname.lastname@example.org to doing something different to achieve improved profit and cash flow in your law firm.