Your Book of Business Stinks
Do you think like a business leader or do you think like a lawyer?
I had coffee with four friends the other day. Each is in a different line of business and each of them market to a different type of clientele. They all had two things in common: 1) They all own service businesses and 2). They all started their businesses within the past three years, in the middle of the worst recession since the Great Depression.
You would think these guys would all be lamenting the demise of the economy. You would think they would all be preaching gloom and doom about the current political climate. You would think they would all be cutting costs to make up for the losses they experienced during the past couple of years. But that is simply not the case.
Each of these start-ups has grown by over $1million in annual revenue during the last two years. Two of the businesses sell to other businesses and the other two sell to consumers. They all spend about 20% of their annual revenue on marketing. They all have a strategic plan in place and they all use a value based approach to their pricing.
When I asked them what one thing was most responsible for their success, the answer was unanimous. It was their focus on creating clients for life. They all said they KNEW they would develop big businesses if they focused on relationships as well as dollars. They had solid plans and they made adjustments along the way but they built their businesses with this vision of success in mind.
Workers think about transactions. Sell this service, make this money. Move on to the next client. Sell that service, make that money. Move on to the next client. Repeat until the clients stop coming then complain about the economy or the government or your partner.
How does this impact you as a lawyer?
It should stimulate your thinking about the business aspects of your law firm. Too many lawyers think like workers and not like business owners.
Every time I hear a lawyer talk about a book of business I go nuts. You don’t have a book of business. The guy who gave you work last year may not give you work again this year. Your great book of business is nothing more than the sum of the transactions you have processed. If you have a book of business, so does the cashier at Target. I think this term, book of business, was made up by some legal recruiter to justify his existence.
When I talk to a lawyer about his law practice I want to know about his client lifetime value and the lifetime value of his referral sources. This means I want to know how much work he has received from his clients during the entire time he has been working with them and how much revenue he has received from his referral sources over the years. To figure this out I ask him to add up the work each of his clients have given him over the years and divide that dollar amount by the number of years in his relationship with that client. Then I ask him to do the same thing for his referral sources.
This means each client has a lifetime value number as does each referral source. If you add up all of your client lifetime value numbers and divide by your total number of clients you will get a client lifetime value number for your law firm. Follow that same formula for your referral sources. These two numbers are the value of each relationship. They are a true measure of your success as a business owner.
Your mission is to increase these average numbers each year. You can only do that by developing deep relationships.
Do not give me the excuse that you cannot have a high client lifetime value because of your practice area. That is crap. I know attorneys in every practice area (including criminal law and divorce law) who have cracked the code on client lifetime value. Put your client’s needs first and you will figure out how to help them over and over again.
What is the first step to building a more valuable law firm?
The first step is to focus on expanding your relationship with your current clients. This means you need to find out what they want, what they need and how they make decisions. Once you know those three things you must figure out a way to help them achieve their goals.
It really is that simple.
But most lawyers do not think this way. They only think about their book of business.
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