At a time when law firm budgets are tighter than ever, the question of how to prioritize marketing resources has taken on a new urgency. In this climate, a number of firms are discovering there is tremendous value in a new type of client profiling that identifies client groups which produce the most value for a firm over time-as well as those that have potential to produce more value.
Breaking a firm's client base into segments that have common growth patterns based on their lifetime value (LTV) to the firm allows managers to learn characteristics about these groups that can drive more effective marketing and business development strategies.
Developing Client Profiles
At the Redwood Think Tank, we develop analytical approaches that help law firm leaders manage by fact rather than by gut. According to our studies, annual attrition of existing client hours averages 15 percent. Firms can combat client attrition, of course, by expanding their existing relationships. But the effectiveness of this strategy depends upon knowing which relationships are most likely to grow.
One of our recent projects has been to develop a unique approach to segmenting clients that allows firms to identify clients that are of high value over time (in comparison with typical 'Top Client" lists which only rank recent stars). Our approach identifies clients in other important segments as well, such as those that have potential to be strong performers, and clients that once were strong performers but have dropped off in recent years.
This type of client profiling does much more than create a general approach to marketing-it provides immediate actionable information concerning the specific clients firms should target, and why they should take action.
1. This approach illuminates the percentage of a firm's work that comes from clients that are inconsistent in the hours provided to the firm. If that percentage is high, a firm should be focused on identifying which of its inconsistent clients are good candidates for initiatives designed to strengthen those relationships.
2. Segmenting clients can help firms identify which practices serve as "feeder" practices that really do attract clients that eventually provide the firm with other types of work as well. This data may support anecdotal convictions (e.g., litigation to compliance), or not.
3. Client profiling identifies relatively large clients that have been left off of recent 'Top Clients' lists because they haven't provided as much recent work as newer clients. While it's human nature to focus on newer, sexier clients, firms neglect older, stable clients to their peril.
The Competitive Landscape
The goal of client profiling is to segment a firm's clients to help strategically prioritize business development efforts. Our researchers begin by examining a firm's full client history to assess the lifetime values (LTV) of all clients.
We build upon our LTV analysis by incorporating knowledge about the firm's relationship strength with clients and its competitors for client business. The compilation provides firms with a full picture of the progress of their key client relationships, and separates clients into low-opportunity clients and clients that can be targeted for growth.
An exciting advantage to client profiling is that it enables firms not only to study their own relationships with their clients-it provides a powerful context in which to study competitive data on client relationships with other firms. For example, once a firm measures how much work a key client is sending to a given practice, the firm can look at the work of the same type the client is sending to competitor firms. By measuring both of these over the lifetime of the client's relationship with the firm, we can determine whether a firm's share of the client's work is growing or shrinking.
Delivering Consistent Value
A crucial component of client profiling is the recognition that clients that produce high value consistently are much more valuable to a firm than clients that are less consistent. So we divide clients into four Quadrants:
> Quadrant 1 - Clients that deliver the largest amount of work with the most consistency
> Quadrant 2 - Clients that deliver large amounts of work with less consistency
> Quadrant 3 - Clients that deliver less work but on a consistent basis
> Quadrant 4 - Clients that deliver less work on a less consistent basis
For more insight from the Redwood Think Tank, read all of "What Do You Really Know About Your Best Clients?"