Bulletproofing your crown jewel clients – Part 1

The title of this posting comes from a recent talk by one of the best known figures in legal consulting, Gerry Riskin, the co-founder of Edge International. Unfortunately, I was not able to be at the Key Biscayne Ritz Carlton when he gave the talk at the Marketing Partner Conference on January 19, but I was able to talk to Gerry about his concepts and conclusions.

The topic fascinates me, because I’ve been wondering for a while why most law firms don’t seem more worried about losing their top clients.

Most experts agree that the legal marketplace is a zero sum game: when one firm wins new business, someone else loses it. So with all the time and money that some firms are investing these days in initiatives to sign new clients, shouldn’t the others be running scared?

Gerry’s talk addressed this very issue. “As the world becomes more competitive, there is an increasing need to nurture and protect clients from competitors,” he said. “No law firm can take their best client for granted… There are just too many things going on.”

“Should we worry? Yes,” he continued. “Do we worry? No.” One explanation: a senior partner who wants to protect a client must tell his peers that he senses some risk. In some firms, that’s like throwing blood into the shark tank. Or, as Gerry more diplomatically put it, “The environment does not foster the confidence to speak candidly.”

Gerry also explained his personal theory that “We all function under a cloud of self-deception.” If people worried all day long about the threats they faced -- from global warming to an avian flu pandemic -- nobody would get any work done. The result is that most lawyers don’t wake up in the morning worrying about losing clients. But maybe they should.

Gerry’s talk included some figures to stress the value of “crown jewel clients.” When a firm has a client that requires $250,000 in legal services per year, its value is actually much greater. To come up with a precise figure, you have to make some assumptions. Gerry assumed that the client will switch to another firm after 10 years regardless of what you do, and that the average interest rate over the 10 years will be 4%. Given those assumptions, the net present value of a $250,000 client is actually $1,895,802. If you want to compute a rough number for one of your clients, multiply this year’s revenues by 7.58. For example, by this formula a $5,000,000 client has a net present value of $37,900,000.

But wait, there’s more. If your big client refers another comparable account, the figure could double. And the benefits in industry credibility and learning can be priceless.

The obvious implication is that, as Gerry put it: “To let a good existing client get poached by a competitor is really really stupid.”

Next week’s posting will explain how to reduce this risk of feeling really really stupid.