What If You Lost Your Biggest Client?
Published October 16, 2012
Large Clients as Security Blankets
In todayâs unsettled business environment, small and medium size law firms may look upon a few large clients as constituting a security blanket of assured revenue. However, that blanket could be yanked away at any time. For example, a partner could leave for another firm and take a large clientâs billings. Or the client could be experiencing financial difficulties that the firm does not know about, until the client files for bankruptcy. A large client could also suddenly be acquired in an unfriendly takeover by a company that already is satisfied with its own law firm.
No Single Client Should Exceed 10% of the Firmâs Revenue
However it happens, the loss of a large client is such a major risk that you may want to consider one of the most important axioms of business: make sure no single client exceeds 10% of your total revenue. Thus, if any one client becomes unable to pay you or is no longer there to pay you, the loss wonât be so hard to handle. I have seen too many firms focus on a very few, larger clients and be severely damaged when the fees from that client fail to continue â from dissatisfaction, change of billing attorney, merger, recession, or other unanticipated causes.
A Balance of Small and Large Clients
Some firms believe that having numerous small clients leads to greater revenue stability. However, studies suggest that small clients disproportionately drain the resources of law firms while providing a disproportionately small contribution to firm profits. I am all in favor of seeking larger clients with more money and more interesting challenges. This effort, however, must be balanced to assure that the firm doesnât wind up with only a few clients, large though they may be, who put the firm at risk if they should leave.
Create a Marketing Plan to Minimize Your Risk
You may be willing to accept this risk for the short-term with the intent of getting more clients so that the percentage allocation to the âlargerâ client is reduced while maintaining the billings at the same level for the client. The most effective way to do this is to develop a marketing plan that identifies and evaluates the kind and size of clients the firm wants and needs. The best way to create a marketing plan is by identifying the hypothetical client targets you wish to aim at, and the work those clients can or may give you to diversify from the larger client.
One final caveat
Make no long-term capital or other expenditures at the behest of larger clients without some type of assurance that their business will stay with you until at least the amortization for the new expenditure is completed. Otherwise a long-term strategy bas ed exclusively on fewer, larger clients will almost always lead to disaster.
Categorized in: Client Relations, Coaching, Financial and Cash Flow Management, Management
Audience type: Large Law Firms, Small Law Firms, Sole Practitioners