The revenue growth formula for any business is:
(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.
Whilst new clients are essential for the growth and energy of any business, they are the most expensive to acquire. However, lawyers seem to focus their energy and strategies on new clients.
Don’t stop looking for new clients, but instead, focus a good part of your marketing energy on your existing clients.
In driving revenue growth in a law firm, “Charging Hours is Only Part of the Revenue Equation”. Having more hours to charge (from scarce resources) doesn’t make the revenue walk in the door.
To increase the number of times a client works with you in a year, you can provide them with additional service offerings. How do you know what they want and need, unless you ask them? For a firm that has a range of areas of law they provide, make sure all of your clients’ needs are met in all areas. My experience shows that most professionals are reactionary when it comes to servicing clients’ needs, be it lawyers, accountants, engineers or doctors. We wait for the client to come to us with a need that they have identified, and feel they need assistance with. They are dictating our revenue to us. Instead, turn it around.
Engage with your clients and ask them questions like:
- “How is business at the moment?”
- “What are the main issues effecting you/your business at present?”
- “What are your 3 biggest challenges at the moment?”
By asking one of these simple questions you can start a conversation with your clients around what THEY need or want, not what you would like to provide to them. They will answer these questions to you in the context of a lawyer/client relationship. Keep asking questions and listen to their answers. I can guarantee they will provide you with opportunities to work with them. What does it cost you? A cup of coffee? 10 chargeable units that you most likely would have been unproductive during anyway? What if you did this to all of your best clients, then with 70% of the next tier of clients? How much extra revenue would that mean for you? Don’t worry about how you’ll do the work, you’ll get it done. Get the job first.
To put this into context:
If you have 600 clients on your client list that you have worked with in the last 3 years), you have worked reactively with 200 of them during the last year on 320 matters and generated $1million in revenue. This means that:
- You have 600 clients, only one-third (200) of whom you have worked with you during the year;
- Your transaction frequency is 0.533, (i.e. the relationship between number of matters and the number of clients). Your transaction frequency per client is 1.6 (i.e. the average number of matters per client that you have worked with through out the year)
- Your average sale is $3,125.
You want to achieve revenue growth of 25% next year. That’s a target of $1,250,000.
If you focus just on a new client strategy, and assuming you can maintain the same number of matters and average fee from existing clients, this means that you will need to find 50 new clients that you will open 1.6 matters (80 new matters) on average at an average fee per matter of $3,125. That’s one new client per week. Think about the energy required to make this happen. Think about the certainty of this occurring.
Instead, let’s say that you implement a strategy focusing on existing clients, and only attracting one new client per month, that’s only 12 at $3,125 per client per matter ($37,500).
We need to find another $212,500. Our strategies will focus on:
- Increasing your transaction frequency by 5%, i.e. pro-actively engage 5% more of your existing clients (that’s working with 230 existing clients) and increase the matters opened per client by 5% for existing clients (that’s 1.68 times)
- Increasing average sale by 5%, i.e. increase the amount we charge each client by 5%
The revenue result from this strategy is $1,304,062 by:
- Increasing the number of client worked with during a year from 200 to 242 of which only 12 are new clients;
- Working on 398 matters instead of 320 matters of which 66 are from your existing clients;
- Increasing the average fee per transaction from $3,125 to $3,277, that’s only $152 per matter.
Imagine the additional profit impact this would have if you could also increase your margin by 10% due to efficiency.
From very small increments in the key components of the revenue formula, focusing on existing clients can produce a significant result. You will improve your client relationships and set the scene for more work with them in the future.
Be proactive about your revenue management, not reactive. Dictate the terms of your revenue growth by structuring your strategies around simple actions that produce simple results.
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.
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