Increasing profitable revenue is a key objective for any business. However, in 2018, the top 100 UK law firms reported an average growth in revenue of just 5-6% with a circa 30% profit margin.
This is a competitive sector, facing continuing change such as the need to invest in technology, an outdated corporate structure, access to capital, new law entrants including US firms, business process outsourcing (BPOs), as well as the threats posed by Brexit and increasing cyber crime.
So to thrive and survive firms need to increase fee income and improve profitability. Net profit becomes financial capital, which in turn can fund strategies to further increase fee income, market share and growth strategies.
These strategies include innovative pricing, developing new services, improving marketing reach, mergers and acquisitions, lateral hires, and more. In terms of organic growth, there are three ways firms can increase revenue:
- Retention and Upsell – protecting and increasing your work levels with existing clients
- Cross-sell – reducing ‘white space’ by selling additional services to existing clients
- Market expansion – targeting and winning new clients via new business development
When the word capital is mentioned, most people immediately think of money or financial capital. This is the money which you either own or have access to for the purpose of starting or growing your business.
Financial capital is a key requirement to growing your firm. But money is just one form of capital and on its own is not enough to make your firm succeed. There are other types of capital, which make up the value of a business.
Human Capital; the people within your firm that have marketable networks and intrinsic knowledge to share with the firm and its clients.
Human capital (as known as, mental capital) basically includes what you and your employees know and can do. In a law firm, it is your people’s accrued knowledge, competencies, education, experience and insights, which you ‘sell’ to your clients. Law firm employees have this form of capital in abundance. Clients turn to firms for advice and solutions as they require a greater level of knowledge, skills and resources to solve complex and unique business problems.
However, simply being a great lawyer, having superior knowledge or being an expert in a particular area is now simply expected, a hygiene factor and isn’t enough in today’s competitive market to win and retain clients.
Other factors including transparent pricing, prompt communication and availability, client experience management, adding continuous value, delivering on innovative technology enablement and being easy to work with now play a huge part in a client’s overall selection criteria.
But one of the key factors of differentiation is how successful an individual lawyer will be, is in the strength of the relationships they have and continue to build – their relationship capital.
So, the aggregate sum of each of your people’s network – who they know and how well – in turn is classified as your firm’s overall relational capital.
Related content: Click here to read my previous blog which defines relationship capital in more detail.
Relationship Capital; basically refers to the people you know and have a connection of material value
These are the people who can vouch for your good work and can introduce you to people in their organisation and network who may lead to business opportunities.
Actively building relationship capital is of strategic importance to your firm. Here are just a few reasons why relationship capital management is important:
- A strong relationship means there’s less motivation for clients to move to your competitors. In fact, a Gallup study shows that vendors with high client engagement or relationship capital achieve 50% higher revenue, 34% higher profitability and 55% higher share of wallet.
- Business development and marketing costs decrease as winning business from a new client is 5 times more expensive than winning more business from an existing client.
- Relationship strength and profitability correlate as existing clients are more likely to trust you are charging a fair price and are less likely to “haggle” or argue over the invoice.
- Clients with strong relationships pay their bills faster, reducing lockup and improving cash flow.
- Strong relationships improve advocacy, which generates additional revenue via client promotion and referrals. In fact, surveys show that executives are 5x more likely to engage via a warm introduction and 84% of decision makers start the buying process with a referral.
- 30% of referral leads convert compared with leads generated from other marketing channels and the average time from contact to sale from a warm referral is 4.3 months against 8 months from other channels.
- Happier clients lead to happier employees, improving staff retention
So how can you convert your mental and relationship capital into revenue?
In your firm, you have an abundance of knowledge (mental capital) and extensive networks (relationship capital), which, when managed effectively, will enable you to access even more financial capital than what currently exists within your business. If you use your knowledge capital well, you can create value for your clients and positively impact on their desired outcomes. In return, this gives you the opportunity to continue to build relationship capital with these clients overtime.
A lack of financial capital is usually an indicator that your knowledge and relationship capital is not mapped well. Instead of focusing exclusively on how to get more revenue from clients, focus on improving, measuring and managing the first two capitals – human and relationship capital – and revenue will soon follow.
So, if relationship capital is so important, shouldn’t you be measuring this as a KPI?
Being able to accurately measure the strengths of your individual and firm wide relationships allows you to then manage these relationships more effectively and take relevant action where required.
Some examples being:
- A reducing relationship strength helps you to identify threats early, helping you take actions to prevent a key client from moving on to a competitor.
- Understanding who has strong existing relationships allows for better matching of people to projects, matters, and key account ownership – enhancing client satisfaction and engagement.
- Weak depth in a client relationship could indicate a “key individual risk” where just one partner leaving may result in a client following them out of the door.
- Being able to identify mutual relationships between lawyers across the firm facilitates improved collaboration and a better client experience.
- The ability to uncover strong relationships with a business where you currently aren’t engaged highlights under-utilised relationship capital, which could then be turned into revenue.
- Measuring changes in relationship strength alongside marketing and business development efforts may indicate which initiatives are having the most positive (or negative) impact.
- The targeting of new clients is far easier when you can accurately see who within your firm may already have a warm relationship within the organisation.
But how can you accurately measure your relationship capital?
Measuring revenue is easy. It’s black and white. You know the time recorded, write offs, fees billed, recovery rates and fees paid. However, measuring relationship capital has always been a far more difficult and subjective process.
Understanding who knows who in your firm—and how well—has until recently been incredibly difficult. Perhaps your firm has a CRM system, which was supposed to be the solution? However, even if 100% of your contacts were captured within CRM, it would simply show a list of contacts with little insight into the type or strength of relationship.
And studies show that over 60% of information doesn’t make it into your CRM, which therefore doesn’t help. Fortunately, Introhive can automate this part of the data capture process for your firm.
How? Relationship Insight Automation:
Introhive passively collects and enriches all your firm’s contacts, analyses them, maps out an accurate picture of your individual relationships, and scores your business to business relationship capital.
Our machine learning algorithm considers over 2 dozen separate touchpoints to ascertain who knows who and which of your people has the strongest relationships. Relationship capital scores are available in real-time via CRM and email notifications, allowing you to instantly see which client’s relationships are improving or decreasing, and most importantly giving you insight into what factors are contributing to this.
Introhive’s platform also maps all new contacts, activities, tasks and relationship data back into your CRM should you wish, saving you time and money on CRM data entry and upkeep. Finally, we will automatically email you this rich insight in pre-meeting digest reports, for example when we see you have an upcoming key client meeting in your diary.
To find out more about how Introhive can help you to understand and leverage your firm’s relationships and assist in relationship capital management, request a demo with us.[/vc_column_text][/vc_column][/vc_row]