Analysing the risk of client decline

In a fragile economic environment, law firms need to increase their focus on client retention by ensuring their relationships remain strong, diversified and mutually engaged. As soon as indicators show a decline in relations – whether through decreased revenues, slower new matter velocity or fewer practice areas engaged – firms should be developing at-risk programmes to identify the root causes of business erosion and implement remediation. Below, we recommend the key ways to conduct these programmes using data-driven methodologies and a high-touch approach to outreach and retention.

Gauging the health of client relationships

At-risk programmes provide an objective framework for firms to get ahead of business erosion, which can occur at both a macro level – affecting entire industries or practice groups – and a micro level, when specific at-risk clients disengage. Identifying early indicators of client risk is critical but, if your firm is focused on lagging indicators like revenue, you’ll likely miss problems that you could have corrected. It’s especially challenging when revenues are dependent on practices with long-running but intermittent matters, since high revenues from a single project can mask underlying issues.

To get ahead of these potential problems, examine the factors that drive revenue by analysing new matter volume and velocity, as well as time since last engagement. For example, if your billings are growing but your number of practice groups is lower, you can conclude that your revenue streams are less diversified than they could be.

Combining client feedback insights and net promoter score data can help reveal your client’s level of satisfaction. To build the trust needed to get honest, complete and actionable client feedback, client listening should be a collaborative effort between firm and client representatives

Meanwhile, a decrease in average revenues per matter might mean your client is using a different firm for higher-value work. New inquiry rates and win/loss analyses will help you understand the nature of your wins and losses. For instance, are there trends associated with practice groups, industries or geographies?

Combining client feedback insights and net promoter score data can help reveal your client’s level of satisfaction. To build the trust needed to get honest, complete and actionable client feedback, client listening should be a collaborative effort between firm and client representatives. Firms also often enlist an independent consultant or a member of senior management to help surface these critical insights.

Generally, client satisfaction is correlated with the strength of their relationship to their client team. Consequently, firms should conduct relationship mapping to identify key decision-makers, as well as continually monitor the strength of the client relationship to mitigate attrition risk if key contacts retire or otherwise move on.

Initiating conversations about at-risk clients

When you’ve identified early signs of decline, look to both the micro and macro factors to inform remediation. If you can attribute erosion to a client leadership change, other clients won’t be impacted, but if you’ve detected a pattern across a population tied to a certain practice group, the problem is likely to be systemic.

The first step is an internal conversation about why a client is at risk. Consider the sequence of those conversations, as well as who to involve. You’re looking for a mix of practice group leaders who can sponsor improvements: those who are still engaged with the client, and those who can identify growth opportunities.

At-risk programmes provide an objective, data-driven framework that can help your firm navigate the sensitivities these conversations typically surface. When data suggests an individual or team is the problem, address those concerns privately.

Making remediation decisions

Your at-risk programme should incorporate data-driven analysis on whether to save an at-risk client relationship or let it run its course. Sometimes, the problems underlying a client departure aren’t resolvable: perhaps your firm no longer performs the work that’s critical to that client or their industry position creates conflicts with a key client. In these cases, your firm may not remediate.

In any case, you’ll need to justify either intervention or status quo by assessing profitability, industry growth rate and the competitive landscape.

Building client remediation plans

Intervention requires a client conversation about recent experiences with your firm and their near-term priorities. Identify several areas where your firm can align with your client’s priorities, focusing on three critical elements: expertise, compatibility and relationships.

Start with identifying opportunities to align with the client in an area lacking a strong service provider, as it can be difficult to displace an incumbent. Select areas tied to your firm’s strategic objectives to ensure continued management support and investment.

Also consider the ancillary areas related to your specialisations: If you want to pursue an M&A matter for a life sciences company, for example, your chances are better if you have strengths in commercial and IP.

Finally, plan for sustainable succession. Keeping clients connected to your teams and introducing next-generation talent is essential for succession planning. By including a mix of seniority levels on the team you can balance the necessary management weight and support to get things done, while also seasoning more junior team members to take the reins when the time is right. By understanding your clients’ unique needs, building the right team to plan and execute your realignment, securing agreement from the client, and communicating regularly, you can keep your client relationships on track for years to come.

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