Client Satisfaction Plummets
Posted By Rob Millard - 0 Comments -
My friend and colleague Gerry Riskin has a posting by the above name on his blog Amazing Firms Amazing Practices, today. He cites data from BTI Consulting Group's latest client satisfaction survey of Fortune 1000 clients, regarding their perceptions of the law firms that serve them. Bottom line: Only about 30% of clients polled would recommend their PRIMARY law firm to others; half had OUSTED a primary law firm in the past 18 months and more than half said that they were planning to try a new law firm for substantive matters in 2006. And this survey included some of the finest firms in the US of A. Does anybody hear alarm bells ringing?
What is a primary law firm? Previous BTI surveys show that over the past decade at least, large clients have tended to rely on a very small pool of law firms for most of their work. Averages are dangerous to rely on, cynics will say, but here's the thing: On average, the "typical" Fortune 1000 client has TWO primary firms who together consume about HALF their total legal spend.
So being a primary firm is a very, very lucrative place to be.
Now, read all the above together with the Citigroup/Hildebrandt review of the US legal market in 2005 that Bruce MacEwen refers to in a posting titled Never Mistake a Bull Market for Brains today. Bottom line, compared to 2004:
1) While law firm revenues and profit increased in 2005, the rate of growth was down on 2004 and margins narrowed slightly.
2) Notwithstanding solid economic performance in most firms, there are increasing signs that bottom line pressures are growing and it will be difficult for many firms to achieve double digit growth in profits per equity partner in 2006.
3) Realization rates are declining amongst the 30 most profitable firms and flat amongst the rest. This is believed to be largely because of pressure from clients for discounts and multiple year rate schedules.
4) The gap between the most profitable firms and "the rest" is widening rapidly and the reality is that many firms that have not made it to "the top" economically are now increasingly unlikely to do so.
5) Research shows that over the past decade, most law firm dissolutions have involved firms that have just posted their highest revenues ever. (Financial performance, the way that it is measured in modern accounting, has always been a better describer of the past than predictor of the future.)
So what does this mean? It simply reinforces a very basic notion that is repeated again and again in literally hundreds of business books every year and is taught on every MBA programme in the world:
Any strategy that is not solidly focused on client delight (not just satisfaction) is COMPLETELY MISSING THE POINT and is certainly not likely to guarantee the firm's long term sustainability.
In Edge, we have for some years been preaching a philosophy of 'bulletproofing.' This involves taking extraordinary care to proactively bulletproof one's premier clients against predation by competitors. To the extent that we have developed a specific, highly effective offering (called 'Bulletproofing,') to get this principle entrenched in firms. It is one of those few consulting services where it is difficult to calculate a return on investment (ROI) because whichever way you cut it, the figure comes out so high as to seem incredible.
I am continually astounded by firms that fail to see the point of this. To improve vision, simply work out what the value of fees earned over the next couple of years is likely to be from such a client, work it back on a discounted cash flow basis, and look hard at the figure on your notepad. How much would it hurt to take a pile of greenbacks of that value, in nice big denominations, and burn them on a bonfire? The Edge International website is undergoing major surgery at present to I cannot provide a reliable hyperlink right now, but if you'd like more information on this then please contact me and I'd be happy to send you some.
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