Charles Christian is a former practicing barrister who has been writing about law and legal technology for longer than he cares to remember and still talks about tech and geek stuff on Twitter at @ChristianUncut
Compliance, compliance, compliance. Yes, we all know it is important and that legal practices must follow the regulations about “knowing your client” to ensure you don’t inadvertently find your firm helping to launder drug money for the Elbonian* mafia. And, naturally, there is plenty of nifty technology available to help automate the know-your-client and anti-money laundering compliance procedures. But, this is only part of the story.
Knowing your client for compliance purposes and ‘really’ knowing your client for business development and fee generation purposes are two entirely different things – and for the latter, the tools you need are the ability to mine your practice database and accounts records. Let me explain…
In many instances your ‘client’ will not a simple entity who uses your firm to handle one matter and then drifts away. Instead, your client is more likely to be a complex entity who uses your firm for multiple matters but in different capacities. For example, in the last couple of years I have used my local law firm in my capacity as the managing director of a company negotiating a licensing agreement, as an individual involved in litigation, and (along with my wife) exercising our powers of attorney to sell my mother’s house and business. And that’s just me and, frankly, you don’t get much simpler than me!
Now not only was I acting in totally different capacities, but I was also dealing with different departments within the firm, so what the property department “knew” about me, would have been entirely different to what the litigation and commercial lawyers knew about me. The question for the firm is: how good are their internal systems and can they capture the complete picture of me? For example, given my age (I’m not only simple, I’m also ancient) and my changed circumstances, might I want to review my will and inheritance planning? Have they picked up on the fact I’m also an author and therefore have various rights issues I need to legally safeguard?
And of course, it is not just about me but also all the hundreds of other clients they have on their books. If you don’t really know who your client is, you are not in a position to proactively up-sell or cross-sell your client other products and services your firm may be able to offer.
There is however also a second side to really knowing your client and that is understanding how much they are really worth to the firm. The big issue here is not the total amount of fees they generate but their profitability. In other words, you may think a particular client is a major source of fees but is this really the situation when you accurately take into all the overheads? Then you could find they are actually far less profitable than you first imagined. And that’s without getting into the whole aged-debtor analysis scenario of can a firm afford to have major clients who take 12 months to settle their bills and whether it would be better for cash-flow purposes to have smaller clients who pay promptly.
Here are some statistics to chew over as I bring this latest column to a close – and these statistics relate to professionals’ services generally, not just law firms…
15 percent of clients generate 45 percent of turnover (ie total fees billed) and 70 percent of profits
25 percent of clients generate 35 percent of turnover and 20 percent of profits
60 percent of clients generate 20 percent of turnover and 10 percent of profits
Your challenge is to be able to identify which of your clients fall into each category – and then to do something to improve this position. Now that is really knowing your client!
* Elbonia is a fictional nation that appears in the Dilbert cartoon series