It’s understandable that firms may feel tempted to take on client work that is outside their core offerings but that can be a false economy for many.
Utilisation has continued to fall in the past year, even as demand has recovered, and that can be enough for firm principals to try and recover the sunk cost of salaries by taking on or retaining client work they might ordinarily pass up.
While firms may be cautious about unnecessarily cutting work, there is long term benefit. By being strategic in cutting a tail of small, unprofitable, or underwhelming clients that don’t fit your firm’s target profile, you can redirect resources and attention to building the kind of practice you aspire to run.
So why should you take a knife to your long tail of clients —and where should you begin?
Know where you want to focus
The first critical decision for firms is to be clear on the kind of clients that are fit for your future,
If you want to build your practice in a specific industry or specialist sector – environmental reporting and ESG, for example – review your client book for those clients who have current or near-term needs in these spaces, and that might scale over time.
This might reveal clients who are never likely to need these skills or services, and allow you to critically assess the appropriateness of your partnership, even encouraging conversations on whether you will carry clients heavily invested in fossil fuels or lagging on their energy transition.
This can help to shape your current and future team, and assess whether the proposed client fit matches the seniority and skills you have on hand. If it does not, you can plan a recruitment strategy that builds the right people, at the right level, and at the right volume.
Identify the kind of client you want to reconsider
When assessing whether it’s time for a client to move on, firms can consider several factors:
Size:
If you have many small and intermittent clients with limited legal needs, you might relieving the administrative and finance burden of servicing these clients entails the great time saving.
You might also have a client who is too big, and it would be better served by a differently resourced firm.
Profitability:
If your tail consists of clients who are challenging when it comes to agreeing on cost but command the attention of mid to senior solicitors, but then quibble over the rates charged or hours taken, it may be time to move on.
On average firms only collect about 90% of the rates agreed with clients before they commence work, according to Thomson Reuters research.
Clients who impact recovery rates with extending workflow timelines can have a detrimental impact on a firm’s overall margin.
Removing these clients from your portfolio means freeing up your legal talent to pursue work for clients who appropriately value their services and improve firm profitability.
Behaviour:
It’s hard to say goodbye to these clients, but farewelling engagements that have become a drain on morale thanks to negative behaviour can help to set a firm up for further success. Firms may see an initial impact on revenue and profit by putting poor cultural-fit clients on the chopping block, but setting and enforcing behavioural boundaries pays its own cultural dividend for your team.
More broadly, it sets a standard that a firm is not prepared to tolerate bad behaviour just to secure a client fee.
Hone your understanding while making aligned choices
With a clearer picture of the clients you want, and the red flags that indicate those you don’t, you can start to improve your client book to reflect the practice you want to run
But take some time to engage with those customers who no longer seem to align with where you are heading.
What were their reasons for selecting your firm in the first place? What were the kinds of considerations that led them to you?
Are there areas where they feel you haven’t delivered what they need — or areas where you could offer more? This opportunity for feedback can soften the process of any separation but can also uncover new areas for potential service delivery.
This process can either confirm that you are right to let them go, or cement them as a bigger, more robust part of your client book.
Where to begin?
There’s no need to rush this process. Some of your tail-end clients might prove to be able to grow alongside your business, either taking up services as you introduce them to your broadened offering or shifting work they hold elsewhere over to you.
For those who can’t, it can be beneficial to reallocate them from your most experienced or senior staff to less senior fee earners as your business transitions.
Some smaller clients can be an excellent training ground, with relatively low levels of risk if they are likely to outgrow the firm fit at some stage.
Importantly, there is not set timeline to start considering adjusting your client book.
Depending on urgency, you might free up staff who are best able to grow your business in the direction you seek to go while allowing emerging staff to step in to established projects.
Equally, you might choose to stage the process, cutting those that are least profitable before those that are small but reliable.
But whatever the approach you take, being strategic about the clients you continue to engage can help your firm refocus for the future.
