Client selection is an issue that many firms do not even consider. In most cases, the focus is on how clients select the firm they intend to instruct, and this is of course a crucial matter. However, as David Maister has consistently argued, ‘Strategy is about saying no’, and so firms need to decide which clients they want to serve, and to which clients they will say ‘no’.
Currently, most firms are prepared to take on any business from any client, provided that they are prepared to pay a price - whether or not the firm is any good at it, and regardless of whether the firm can make a profit from it.
No Time for Compromise
However, if a firm is serving a wide range of different clients for different work types, they may end up compromising and not satisfying anybody. Going forwards, it will be increasingly difficult to serve diverse markets such as Litigation and Wills & Probate. Put simply, the skills and resources required to compete in high-value, relationship-based services and lower-value transactions are becoming increasingly divergent.
Moreover, within and between work types all clients are not equally profitable, and firms need to focus on those that they can profitably service. Again, making a healthy profit in relationship markets requires charging a premium for excellent service, whereas in lower-value transactions margins will be tight and the focus must be on volume and efficiency.
Analysing Clients - Analysing Profitability
Firms should first profile their ideal clients and analyse their current client base, in terms of the type of work, the method of delivery and communication and, crucially, how profitable each client is. Clients who dispute every bill and try to negotiate unreasonable discounts may well not be worth the money they bring in.
There should thus be a system of grading ‘good’ and ‘bad’ clients according to how easy or difficult they are to deal with and whether they pay in full and on time.
The partners can then look at the markets the firm operates in and consider whether specific departments require investment, cutting back or even divestment, and put in place a roadmap to achieving their goals.
Ultimately, law firm strategy means consciously deciding what sort of work the firm wants to do and, just as importantly, what the firm will not do – and having the courage to turn down clients and work that do not fit the firm’s requirements – especially in terms of profitability.