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Increase Client Retention

Acquiring new clients can cost five times more than retaining current clients, and the average company loses a staggering 10 percent of its customer base each year, according to the American Marketing Association.

Once you have signed a new client, your next challenge is to foster a successful long-term relationship that will withstand the effects of a competitive marketplace. (Note that this concept is less applicable to firms with a transaction-based business.)

Successful firms develop a client service model that maximizes the life of the account. New business obtained from current or past clients tends to be more profitable, due to a lower cost of acquisition and a higher likelihood of successful completion.

Client retention rates can be fairly easily calculated using a year-to-year comparison. Print out a copy of your 2005 client list as of December 31, 2005. Then generate a similar 2006 client list as of December 31, 2006. If you served 100 clients in 2005, determine how many remained active during 2006. If 10 of the 100 clients did not return to do business with you in 2006, you have a 90% retention rate. While a 10% loss may not sound bad over the short run, at that rate you will need to replace all of the 100 clients you served in 2005 over the course of 10 years!

Your retention rate is extremely important, since it has a direct impact on your firm’s profitability. Let us say, as an example, that your firm’s total annual billings are $3 million. If you have 100 clients, that translates into an average of $30,000 in annual revenue per account. When you lose 10 accounts per year, you need to replace $300,000 in annual billings just to protect your base. 

If you can increase your retention rate to 95%, theoretically you can retain an additional $150,000 in revenues using the above example. Of course, some account loss is normal due to mergers, acquisitions, client relocations or other factors. Obviously, the longer you can retain an existing client the more profitable your law firm will become. Even a small increase in client retention can yield significantly increased profits.

A related client retention concept is “share of wallet,” meaning the percent of your client’s legal business that you currently serve. If the answer is 100%, that’s great. However if your client spends $500,000 annually on legal services and your firm is only getting $100,000 of that business, you may discover that what once looked like a great account can actually be at risk. Find out what you need to do to expand your “share of wallet” by getting more of the other $400,000 in legal services being purchased by this potentially more lucrative client.

The lesson here is to pay close attention to the quality of legal services you offer, client satisfaction levels and competitive factors in order to increase the lifetime value of your clients. Consider establishing a “Client Advisory Panel” to foster good relations, and also take special steps to restore confidence with “at risk” accounts.

By Legal Expert Connections, Inc.
Legal Marketing, Expert Marketing, Attorney Marketing, Lawyer Marketing
ABOUT THE AUTHOR: By Margaret Grisdela, Legal Expert Connections, Inc.
Margaret Grisdela is the Founder and President of Legal Expert Connections, Inc., a legal marketing firm specializing in marketing and business development in the legal and litigation support markets.

Copyright Legal Expert Connections, Inc.

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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