Legal services are being commoditized as corporate legal departments pressure law firms to deliver services at more predictable, lower prices. If they wish to remain profitable, law firms will have to reexamine how they do business, from the services they offer to the clients they serve. So say William Josten and Ian Turvill in their whitepaper, Reinventing the Law Firm Business Model: Making the Most of Business Development Opportunities and Driving Long-Term Growth.
Josten and Turvill recommend four strategies to clarify legal business models that will ensure firm growth today and tomorrow:
1. Find your niche
It’s no longer a viable strategy to offer a range of services designed to highlight your firm’s core capabilities in hopes that clients will need those services. Instead, zero in on the most profitable clients and let their priorities guide your practice. By designing niche services that serve these clients’ needs, your firm can differentiate from the firms offering every service under the sun. Your marketing and business development efforts will be much more targeted, enabling better spend and return on investment. Moreover, your firm can become known in the market for its distinct expertise, paving the way for opportunities to speak at conferences and be quoted in trade publications.
To start the process of finding your niche, answer the following questions:
- Who are our current clients?
- Who do we want as clients going forward, and who don’t we want as clients in the future?
- Which clients, industries and practices are most profitable for us and represent the greatest growth opportunities?
- What do our target clients do for themselves, and which needs of theirs can we help meet?
- How do we need to change to best handle our target clients’ needs?
2. Reconsider pricing
Billing by the hour may put firms at risk as demand for services falls below the supply. Plus, it can put your firm in the position of feeling the need to slash rates or offer discounts. These four models provide an alternative to the standard billable hour model, enabling a viable, long-term business:
- The Total Solution model provides a single price to address every aspect of a client’s issues and related concerns. The goal is to become the go-to legal resource for the client in all matters, leading to long-term profitability.
- The First Mover model is for firms that are the very first in the marketplace to address new legislation, regulation, or emerging issues. While the opportunity to position as the first mover is a narrow one, those firms that manage to succeed find themselves as sought-after industry experts commanding premium rates.
- The Spin-Off model is ideal for firms that find a unique way to manage their business or provide services. In the paper, Josten and Turvill cite the example of one firm that streamlined its internal processes and spun off a new company to advise other organizations on how to do the same.
- The Product Pyramid model provides high-price products that may be low volume but with a high profit margin. The aim is to compete with the likes of new competitors who are stealing business by charging low rates for basic services. One example of a Product Pyramid offering is the software H&R Block sells in addition to its traditional tax preparation services to try to undermine competition from online tools.
3. Figure out what you do – and what you don’t
As discussed in the first strategy, your firm will fare better by evolving from an inside-out to an outside-in perspective. In other words, take your focus off practice areas, assets and competencies and, instead, place it on the needs of your clients and the demands of the marketplace. As you reconsider which services to offer, your firm should analyze the business processes required to serve clients and to keep the business operating. Understanding and pinpointing the most relevant and profitable services and processes can help your firm effectively recast itself for the marketplace.
4. Differentiate your firm
While a new and strategic approach to client selection, pricing, and activity focus is essential for a sustainable practice, it’s worthless if your firm isn’t prepared to develop and win new business. Relying on brand recognition is not sufficient – especially when the established brand does not accurately represent your new market approach. Instead, the paper recommends that firms focus on elevating and owning the client relationship. To make this shift, your firm must answer these questions:
- Who truly owns this relationship – the firm or the relationship partner?
- If it is the partner, what can our firm do to gain more control over that relationship without causing friction between us and the partner?
Next your firm needs to figure out how it can best win and keep that client’s business by answering the following:
- How do we differentiate ourselves?
- Among the clients we’re targeting, where do we win their business, and once we have it, how do we keep it?
- What are we doing to innovate?
- What do we do better than our competitors? What do our competitors do better than us?
Take these steps to designing your business model, and your firm will greatly improve its chances of building a sustainable business.
One proven way to differentiate yourself is by how you serve your clients and how effectively you build relationships with them. Providing exceptional client service is a sure way to protect profitability, and CRM automation makes it simple. Consider how Osler, a leading Canadian law firm, uses it to drive better business relationships.