Since I wrote the first part of this article little has changed for the better, and it appears that a long cold winter lies ahead for many. It does not all have to be gloom and doom though, and for most of us the future still remains within our own control.
We have looked already at some of the more protective measures that a firm can take to maintain profits, by cutting costs and improving marketing to existing clients. Let’s now look at some of the more proactive ways of increasing profitability.
Clients are the lifeblood of a firm and the volume of new clients is often seen as the most obvious sign of success. With diminishing demand for certain services, how can we maintain these client numbers?
Planning a campaign
There are no simple answers, but there are a number of options that should be considered. Advertising is an obvious one. This can be a blunt and often expensive tool, but as advertising revenues are dropping, so are costs, making it more appealing to undertake a campaign. Advertising without clear goals and targets closely monitored, however, is likely to be as successful as a blind archer at the Olympics. Advertising should be paid for by results!
Adverts have to have a clear message and a clear proposal. It is not effective therefore to place an advert stating “We do conveyancing”. This is more a statement than a meaningful advert. People generally buy two things, “people” and “results”. How you phrase these two proposals in an advert is an art in itself, but it’s likely that an advert linking you to a particular geographical area (e.g. Glasgow) or client type (e.g. nurses), and with a specific result, e.g. fixed fees, personal service or even “keys on time or your money back”, will bring the best results. It is important that people make a connection with you or your firm (i.e. you have a connection with a geographical area or a sector of the population) and have some reason to expect that you may be able to secure something that they want.
Advertising campaigns, as with all business processes, should start with the end in mind. Set yourself a budget and a timescale. Monitor closely any increase in business as a result of the advert and ultimately whether there is an actual benefit to the bottom line. Remember that what you actually keep is about half of the gross fees generated and from that you have to deduct the cost of advertising. Depending how well you know your business, you might be able to extrapolate further how much each new client is actually worth to your firm. If for example you make a £250 profit from each new client and 33% of them will use you at least three more times during their lifetime, the actual profit is £500. If a £1,000 advert brings you three new clients, you have made a £500 profit after the cost of advertising. This is not an exact science but it at least allows you a framework to monitor the success of a set of adverts. Without it you are just shooting arrows into the dark and hoping you hit something!
Vary the approach
If advertising proves successful repeat it, but also consider either adding or changing markets. One advert will not hit every market sector, and adverts with other “proposals” may bring in different client types and numbers. So, if you have successfully marketed to nurses, could you next aim a similar set of adverts at doctors? If you have targeted the result as “we’ll get you the house”, could you now offer “the best value fees in town”? Each will attract a different type of client and again the effectiveness of the advert can be monitored and the campaign expanded or dropped depending on the results.
This approach can be further enhanced. If you have decided to target a certain market, it may be possible to produce articles relevant to the issues of that market in publications applicable to them. So, if you had targeted opticians for example, perhaps the journals that opticians are required to read would let you write some features relevant to them. If you are simply targeting your local area, local papers are often happy to consider articles particularly from those advertising with them. Ultimately what you are attempting to foster is a sense of connection with your firm. You can also use these articles to highlight areas of law that are of interest and in which you would like to encourage more client enquiries.
We touched on seminars previously to retain existing clients. They can also be very effective in winning new ones, used either independently or in conjunction with advertising. Used with advertising you will generally find a much higher strike rate. Those who attend are amongst the best possible prospects as new clients, but for people to take the time and effort there must be again, a result on offer. While I would personally strongly recommend that seminars or adverts on “Cheap Fees” are unwise, there are other more positive results that can be reinforced at this time. Each firm will identify its own areas, but some suggestions could be “How to bag a house bargain in the current market”, “Trust deeds and insolvency – How they might work for you”, or “Inheritance tax, the optional tax”.
To digress for one moment, clients are not interested in how well you will carry out, for example, a conveyance: competence is assumed. You are a solicitor and to the public at large the presumption is that we all do the same thing and they will be compensated if we get it wrong. What they are however looking for is someone who can benefit them in some way. Once they have found them, fees are generally not an issue.
Remember me to your friends
Our own client banks remain a rich and fertile source of new referrals. Who better than those who already know us to recommend us to their families and friends? But do your clients know that you would welcome, or indeed need this type of business? At the very least every client should be asked at the end of every transaction:
(a) If they were happy with the service? and
(b) If they would be happy to recommend their family and friends to you?
You cannot assume that they will do so. Unless you let them know, how will clients understand that you welcome this type of business? Indeed, subject to the Law Society of Scotland’s rules in place from time to time, there may be ways to actively reward clients for their referrals. In the unlikely event that a client gives you a negative response you then have the opportunity to mitigate any damage by addressing their concerns, justified or not, before they spread negative feedback.
Again this can be tied in with the regular mailshots that we touched on earlier, not only maximising the prospects of retaining existing clients and expanding the services that we offer, but additionally encouraging referrals on a regular basis.
Let us consider what I would call “gatekeepers” – those individuals or companies who deal with large volumes of potential clients. The obvious ones are mortgage brokers, banks and building societies, but many more exist. These may range from citizens’ advice offices, accountants or surveyors to professional bodies and large employers. The propositions for them remain the same: is there a person and a result that they wish to “buy”? The answers will be as diverse as the solicitors and the gatekeepers, but the rewards for securing this type of business stream can be substantial.
Finally on this subject there is the path of acquisition. Many firms will not weather the current storm well, and opportunities may exist to acquire firms and their client banks at little or no cost. This avenue is not without its perils, but there are already firms actively seeking to acquire client banks without necessarily acquiring staff or premises, to fully utilise the capacity that they have built up to process certain types of work. Certainly these are excellent times for those on the acquisition trail.
Broadening your appeal
We look lastly at increasing the number, or improving the quality, of services that we offer. As solicitors we can offer all the services that a legal practice is entitled to offer, within the limits imposed by the Society and by our indemnity insurance. Most firms offer but a fraction, preferring to rely on the repetition of a limited number of services that they are comfortable with. For many this has been not only acceptable but highly profitable. Specialisation has allowed many firms to deal with much higher volumes while retaining healthy profit margins.
This is unlikely to be the case for many general practices today, so that either diversification or further specialisation has to be considered. For example a general conveyancer may spend 80% of their time on conveyancing matters but would consider executry work, wills and commercial work – although the thought of a court appearance might terrify them! In the current market I believe they would be faced with three choices.
First, they may look to expand their business in areas in which they are already comfortable. In our example, that might be trying to increase wills and executry work and commercial instructions. The challenge will be that this is a spinoff from general conveyancing, so will be reducing in line with the current market. Active marketing of these services would be required in the ways that we have already touched on. There is no doubt however that with the reduced volume of work being experienced by many, there is both the time and the opportunity to target existing clients on services such as powers of attorney, wills and IHT. These if marketed correctly will not only bring substantial additional income but will improve client retention significantly.
Secondly, they may do nothing regarding the range of services but seek to become more expert in some or all existing areas. If you cannot change the number of hours you bill for, the best option may be to increase the rate that you can charge per hour. This may involve further study or qualification followed by some form of advertising of these new skills, but once achieved there will be realistic prospects of higher fees for the work undertaken, plus the likelihood of more referrals from a variety of sources in these areas. This path may however require a longer term view to be taken.
Lastly, they may look to develop as many additional services as their firm is able to support. A diving board is a very poor business model, being a large board supported by a single pole. A table with four legs is much more stable. Likewise a business with many potential income streams is the most robust. The benefit of this approach then is not only short term improvements but a far more balanced and stable business model for future years. Some of the additional services will be obvious and we have touched on these already. Others may need additional expertise either by training existing staff or by acquiring new staff.
We have as a profession almost limitless opportunities to develop services for our clients, not only in our traditional roles but in many areas that are developing. There is no doubt that many firms continue to do very well in times such as these: firms with expertise in insolvency and debt issues, but also firms with a focus on associated areas such as matrimonial (which tends to increase during times of financial issues), litigation and developing areas such as intellectual property. Ultimately each practice will require to look to its future and decide which services it feels best able to and has a desire to provide.
Some thought should be given to building work streams that are recurring. Too many of our traditional services are occasional purchases. While, seen over our whole client base, conveyancing does provide a regular flow of business, many of our clients will utilise our services irregularly. Recurring work types with annual meetings/checkups or consultations will guarantee future stability and will add huge value to the worth of the business.
Don’t go this way
It is worth considering a few things not to do in the current market. Cutting fees is a course for many firms struggling to maintain client flow. This however is an extremely dangerous path unless you are very sure of your facts and figures. While you may wish to consider reducing profit margins, it may be better to spend the time developing other work types than carrying out work for no profit or, worse still, a loss. For the avoidance of any doubt, a small loss made in a transaction, when multiplied by a higher volume of transactions never becomes a profit, it just becomes a bigger loss!
While reducing costs has been identified as essential, it remains equally essential to protect and nurture the core of the business. Unnecessary expense may be wasteful, but equally so will be kneejerk reactions and shortsighted costcutting. Better to retrain or redeploy existing staff in areas where demand for services remains strong.
Likewise, reducing the standards or quality of the service offered is a threat to the long term future of the business. If business is quieter, it is very easy for standards to slip. Times like these are the ideal opportunity to concentrate on providing an excellence of service in every way. Systems can be introduced and tested to ensure real quality of service and value to clients, which would be impossible to implement during busier times. Once in place, these systems will continue to deliver rewards for many years to come.
Little that I have mentioned is original or unique. It is useful however to be reminded of it from time to time. Implementing even small changes in each of the areas that we have touched on, when looked at cumulatively can make significant improvements to the success of a business. Be heartened though: for those who survive the year or two ahead the times after will be profitable, and those firms who have weathered the storm will be well placed to reap the rewards.
Stephen Vallance is a former partner in Vallance Kliner & Associates, Glasgow. He is happy to undertake consultancy work. For any queries arising from this article or any issues surrounding practice management, profitability or marketing, contact him at email@example.com .
Pulling through: top 10 tips
1. Look to implement small changes in a number of different areas of your business.
2. Understand the true value of a client. What is a client worth to the business in terms of net fees?
3. Cost cutting can add real value to the bottom line – provided you don’t affect service or quality.
4. Advertising in a recession can bear fruit, but has to be targeted and monitored.
5. There are many ways even in a recession to acquire new clients – you just have to concentrate on their needs.
6. Maximise the value to the business of every client by widening the range of services offered.
7. Never forget to ask for referrals. How else will a client know you want them?
8. Resist the temptation to reduce fees. Try to focus on the results that the client needs.
9. Try to build a business with many income streams. It will be more robust and will have a much greater value.
10. Remember, it’s better to be at home with the family than doing work you aren’t getting paid for!
In this issue
- Discrimination is discrimination
- Servitudes and shop fronts
- DLA Piper in expansion mode
- At your service
- ARTL and secure signatures
- Sending a unified message
- Facing the squeeze
- Room for doubt
- Dealing with our older casework
- Regime change
- Risky business
- Drink problems
- Consumer credit licence changes
- RFPG's online trainee service
- Adult incapacity: new caution scheme agreed
- Appreciation: Sandy McIlwain
- Stair Memorial marks its 21st
- "Gateway" opens its doors
- Facing the lean years
- On the road again
- E-legal @ Nothing but the Net
- IT - ever onwards
- Testing competency
- A Wise decision
- Name calling
- Diverse guidance
- Tackling the sporting bodies
- Keeping it legal
- Scottish Solicitors' Discipline Tribunal
- Website reviews
- Book reviews
- Charging the death offences
- Another hoop to jump
- An idea whose time has gone
- Society launches home report solution