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4 posts from November 2006

November 22, 2006

What can we learn from lawyer jokes?

When the client saw her new lawyer’s lavish office, the first question she asked was: “Can you tell me how much you charge?”

"For a preliminary consultation,” he replied, “I charge $1,200 to answer the first three questions.”

"Don’t you think that’s kind of high?"

"Some people react that way," said the lawyer, "What's your third question?"

I started thinking about lawyer jokes and public perceptions when I read a Business Week article titled “Let’s Offshore the Lawyers” (9/18/06). It started like this: “Mention offshore outsourcing, and Americans fume. But who would cry if we outsourced the work of lawyers, with their fat fees and endless strategies for adding years to litigation?”

I’ve been reading Business Week for many years, and I thought that was the cheapest shot they’d ever taken at an entire profession. Which got me wondering about why lawyers seem to be such a big target for jokes, like the ones I've reproduced here from a lawyer jokes website.

He came straight from Harvard Law Review to start at this father’s firm. At the end of his first day, he rushed into the father’s office. “Dad, you won’t believe it! You know the Smith case? It’s been going on for 10 years, and I settled it on my first day. You said it would go on forever.”

The father sat quietly for a moment, then looked up and shook his head. “No, son. What I said was that it COULD go on forever.”

In summarizing the results of a 2006 survey of corporate lawyers and their clients, Inside Counsel magazine said: “It’s no secret that legal departments’ relationships with law firms are somewhat tense. That tension is largely attributable to the fact that their objectives are at odds: general counsel put a premium on efficiency, while law firms need to bill as many hours as possible.”

What's the difference between a lawyer and a boxer?

If the fight lasts longer, the lawyer earns more.

43% of the clients in the Inside Counsel survey said that law firms make too much money. Even worse, 42% agreed with the statement “most law firms pad their bills.” That’s a pretty serious accusation from 42% of your clients.

From an itemized bill for legal services: "Was walking down the street and saw you on the other side. Walked to the corner to cross at the light, crossed the street and walked quickly to catch up with you. Got close and saw it wasn't you. -$200."

Meanwhile, 74% of the lawyers in the survey said that their firms are actively seeking out ways to reduce legal costs. They’d better tell their clients what they’re up to, because only 11% of the clients agreed with the exact same statement.

As the Inside Counsel survey summed it up “Most of the friction between law firms and their in-house clients can be traced back to costs.” There is a widespread perception that clients’ interests conflict with their lawyers interests. This can't go on in an age of globalization, price pressure, public accountability, and transparency.

If you doubt that cost pressure is building, see the thoughtful comment that a legal marketer added to my blog on RFPs last week. His firm has spent hundreds of thousands of dollars responding to 15 RFPs in the last 10 months. They've won very little, and he called the results “Embarrassing and frightening.”

Or see Amy Campbell’s summary of last week’s corporate counsel panel at the Legal Marketing Association of New England conference. Scroll down to the section on alternative billing, and read about the company that set an annual legal budget with the law firm that did 80% of their work, then paid only 50 cents on the dollar for any costs that were over budget. (If you are a glass half-full type, you can be encouraged by the fact that if the law firm came in under budget, they would get 50% of the savings. But as a glass half-empty guy, I’ll bet they also get a smaller budget the next year.)

I’ll talk more about how hard it is to address these issues in future posts on hourly billing and alternative fees. But until somebody comes up with an answer, people are going to be telling jokes like this:

How many lawyers does it take to change a light bulb?

How many can you afford?

November 15, 2006

How to satisfy clients: Different strokes for different folks

Last week, I talked about Fred Reichheld’s “Net Promoter Score,” which many experts believe is the single best way to measure client satisfaction. How do you think your firm would rate?

Chances are, you think you’d do pretty well. After all, you’ve been around for a long time and do great legal work.

Well, the chances are you’re wrong. As I explained in my post on The Lake Wobegone Effect, a number of studies have shown that lawyers consistently overrate client satisfaction. But don’t feel too bad: everybody else makes this same mistake. In his bestseller The Ultimate Question, Reichheld quotes surveys showing that 80% of senior executives in a variety of industries believe that they deliver a superior experience to customers, but only 8% of customers agree (p. 117).

The book goes on to describe research on how to improve customer satisfaction, including many suggestions which could be applied to the legal profession. His first step is to classify your clients based on their level of satisfaction and their profitability.

Focus first on your best clients, the ones who are both happy and profitable. Reichheld argues most companies pay far too little attention to this key group. “At best, companies take [these customers] for granted. At worst, they [use their profits] to fund solutions for other customers… who are less happy or less profitable. (p. 123)”

Do you want to make sure that you don’t “ignore the very people who sing your praises the loudest and who provide you with the best prospects for growth (p. 126)”? Do a back of the envelope calculation of the proportion of your income that comes from these top clients. Now do a second calculation: what percent of your marketing time and money is invested in them? If there’s a large gap, ask yourself whether you should spend more to insure the loyalty of the clients who pay your bills.

Are you ever tempted to maximize income by increasing the rates for these happy clients? According to Reichheld, that strategy is both short-sighted and likely to backfire. What you should do is to monitor the profitability of your best clients and “if margins drift upward, either cut prices or use the margins to provide even more value to these customers” (p. 126). In other words, reinvest in your best clients to assure their continued satisfaction, and to protect yourself from all the other law firms that are increasingly trying to take them away.

Once you’ve taken care of the clients who are both profitable and happy, the next group to look at are the ones who are profitable but unhappy. Ask them why, and fix it. Be prepared to accept a reasonable reduction in profits in order to move them into the happy group that will serve as promoters and give you referrals.

Then, after all the profitable clients have been taken care of, it’s time to turn to the unprofitable ones. This is where a little hard-headed business sense is called for: “Up or out. Since there is little profit to invest in fixing their problems, you must either discover a more efficient way to serve them or find a way to move them to the competition. (p. 128).”

As you work to increase customer satisfaction, you are likely to face some hard decisions on cost. More about that in next week’s post on “What can we learn from lawyer jokes?"

November 08, 2006

The most important question to ask your clients

If you’ve ever taken a vacation on frequent flyer points, you might want to send a thank you note to Fred Reichheld. He’s been writing and speaking about the value of customer loyalty for more than 20 years, and has inspired many companies to put more of their marketing dollars into satisfying their current customers and less into looking for new ones. Reichheld and his colleagues at Bain have published several books and numerous studies showing that companies with high customer loyalty rates grow revenues twice as fast as their competitors. They have also shown that companies can increase profits by 25% to 100% simply by increasing customer retention by 5%.

Reichheld
In his recent Wall Street Journal bestseller The Ultimate Question, Reichheld argues that companies should focus more attention on measuring the response to one simple question: “How likely is it that you would recommend us to a friend or colleague?” Clients who rate the likelihood at 9 or 10 out of 10 are called “promoters” and are responsible for generating sustainable growth. You might think 7 or 8 on this 10 point scale would also be pretty good, but Reicheld has found that these people are motivated more by inertia than by enthusiasm. He calls this middle group “passives” and notes that they will often jump to another company at the first sign of a better deal.

The most serious business risk comes from “detractors”: people who rate the likelihood of referrals at 0 to 6 on that 10 point scale. From a strict accounting view, many of these detractors may be profitable in the short term, but Reicheld notes that “Customers who feel ignored or mistreated find ways to get even. They drive up service costs by reporting numerous problems. They demoralize frontline employees with their complaints and demands…” (p. 6) 80% of negative comments come from this detractor group, and in this age of email and Internet ratings, a single complaint can reach hundreds of potential clients in the time it takes to hit the send button. In short, detractors “suck the life out of a firm.” (p. 30).

Reicheld and his colleagues argue that companies can “measure customer relationships as rigorously as they now measure profits” by focusing on the “Net Promoter Score”: the percentage of promoters minus the percentage of detractors. This figure varies from industry to industry. In supermarkets, Costco scores highest with a Net Promoter Score of 81%, while in car rentals Enterprise’s score of 53% beats all of its competitors. (p. 196) But regardless of the absolute number, “In industry after industry, the ‘Net Promoter Score’… provides the single most reliable indicator of a company's ability to grow.”

I’d love to see Net Promoter Scores for the nation’s largest law firms. While I don’t think anybody has collected that exact data yet, BTI Consulting has reported a related statistic showing that there’s plenty of room for improvement: only 31% of large organizations and companies recommend their primary law firms.

What can be done to get those numbers up? Next week I’ll go into the details of Reicheld’s research, and what it suggests for law firms.

November 01, 2006

Legal sales training -- Frequently asked questions

Have many law firms tried sales training?

In their 2006 survey, ALM Research reported that 69% of large firms (with an average of 489 lawyers) have tried sales training, along with 46% of mid-sized firms (with an average of 118 lawyers).

Were they happy with the results?

Some firms have been so impressed with the results that they have established continuing business development training programs for their lawyers. But many others have been dissatisfied. In the ALM survey, when participants were asked to rank the relative importance of 8 factors that contribute to revenue growth, sales training came in dead last.

What works best?

Every consultant will tell you that his or her approach to sales training is the best, including me. The truth is that in today’s environment many different approaches will work. Many law firms report that coaching in basic selling skills can have a large impact… as long as the program includes follow-up.

Why is follow-up so important?

According to Tom Snyder of Huthwaite, a global leader in sales training, “Research shows that launching a sales improvement effort will always fail if it relies on the training alone to make a difference.” Without follow-up and leadership commitment, only about 3% to 8% of the people who complete a sales training course will succeed in applying the skills. The rest will either try and fail, or not even try.

Which lawyers should take sales training?

It depends on how you define sales training. If you mean customer service training to protect and increase revenue by strengthening relationships with current clients, almost every lawyer could benefit. But if you mean training to find new clients -- what I describe in my book Legal Business Development as “the hardest work you can do in a suit” -- it is only for the motivated. Because it is so difficult to predict which lawyers will be most successful, firms would be prudent to provide help and support to every lawyer who wants to try.

What should my firm do to get started?

There is only one way: jump in. First and most important: pick the right lawyers for the first group. In every firm, some partners will be skeptical and some may be actively opposed to investing time and money in sales training. If the first sales training workshop is a failure, there may not be a second workshop. The best lawyers to include are the ones who are most interested in trying training, and who are willing to commit time to following up. Motivation does not guarantee success, but lack of motivation will guarantee failure.

Second: start small. Prove that an approach works with one group in your firm before extending it to others.

Finally: pick a coaching firm that has a track record of satisfied legal clients.

How much sales training do lawyers need?

This is another question that gets different answers from different consultants. I believe that training time in a classroom should be kept to an absolute minimum (2 hours in my 60 day program). However, the time spent following up with actual clients and prospects should be maximized: at least 2 to 8 hours per week for 8 weeks.

Given that there are conflicting opinions about what works best, wouldn’t it be wise to wait until a consensus emerges?

Waiting is the worst thing you can do. While you are standing on the sidelines, other firms will be training their staff to take away your clients.

As Mark Usellis wrote in the August issue of Strategies: “This is not a time to rely on precedent or to do what other firms are doing…. There will be a huge first-mover advantage.”

Selling is like prospecting for gold. If you wait until everyone agrees exactly how to do it, all the gold will be gone.

To download a copy of these FAQs, go to the free resources section of our web page.