It’s In the Mix: Practical Advice Learned from Other Industries About Maintaining a Diverse Client Mix
Diversifying your client mix can reduce risk and protect your law practice from unexpected economic downturns
The old saying, “don’t put all your eggs in one basket” has never been more true– and that’s especially the case when it comes to practicing law. Since many firms (particularly smaller ones) rely on just a few main clients for most of their billings, they’re leaving themselves potentially vulnerable to a variety of risks. Clients come and go and, unless a firm’s attorneys are careful, a firm could be bankrupted because one or two major clients moves, goes out of business, or decides to use the services of another firm. This is especially the case if the firm’s major clients are over-concentrated in the same business area– and more so if clients are operating in potentially volatile industries such as real estate, or finance.
Despite the many risks of client overconcentration, many attorneys still see their law practice as a vocation, rather than a business– so they fail to take precautions to diversify their income sources (i.e. clients) from market downturns and other risks. By failing to diversify their client base, these attorneys put both themselves and their employees at greater risk– but those risks can be avoided with a little preparation and a smart strategy.
Smart law firms make sure that no one client represents an outsized percentage of their revenue
In the last few decades, savvy lawyers have increasingly been treating law firms like what they are– businesses. Taking a business-like perspective with your law firm doesn’t just mean watching the bottom line; it also means making sure that the firm consistently retains diversified streams of revenue. If you were running a flower shop or a cafe, you’d know that relying on one client for more than a small fraction of your overall business is a disaster waiting to strike.
In fact, many experts suggest that businesses should ensure that no one client represents more than 10% of a company’s overall business revenue– and there’s absolutely no reason that shouldn’t apply to law firms, as well. However, in many cases, firms don’t hesitate to allow one client to represent 15%, 25%, or even 30% of their total revenue– and that can leave them in a shaky spot if a major client leaves the firm.
Smart firms also look to expand their practice by geographical area, when possible
In addition to diversifying clients by size of revenue and industry, it can also pay to expand your law practice’s marketing reach beyond your local area. For smaller firms, that could mean expanding to several counties around the area where most of the firm’s client base is situated, while medium-size firms may wish to expand statewide, or even to multiple states (if one of the partners is licensed to practice law there). A small number of small and medium-sized firms may wish to expand their marketing strategy internationally, but this is usually only appropriate for specific legal areas (i.e. immigration lawyers in South Florida marketing to clients in Latin America and the Caribbean).
Hiring a diverse employee base can help foster client diversity, too
If you’re hiring new employees and you’re looking to diversity your client base, you might want to consider diversifying your staff, as well. Whether that means looking for employees with different ethnic, cultural, or educational backgrounds, or hiring a new attorney who may be able to bring the firm a book of clients in a slightly different practice area, having a diverse staff can pay dividends when it comes to attracting a diverse client base.
In many cases, staff members with different backgrounds and areas of expertise can help solve client’s problems in innovative ways, while each helping to contribute their client expertise to a firm’s integrated marketing strategies. By giving your newly diversified staff occasional marketing tasks, such as blogging, attending industry events, or doing a limited amount of pro-bono work to help give your firm a helpful PR boost, you can help attract a diverse client base and effectively market your firm across a variety of high-ROI demographics.
Whatever you do, don’t depend too much on one or two clients to keep your firm in the black
In the legal industry, putting all your eggs in one basket can easily become a financial disaster. In the last few decades, several of world’s largest and most respected firms have gone under– a catastrophe they may have been able to avoid by taking proactive steps to diversify their client base to multiple practice areas, industries, and geographic areas. Nearly every other industry, including finance, tech, and media, knows that diversification is key to the long-term financial stability of a business. The legal industry is no different. So, if your firm’s clients are over-concentrated, it’s your responsibility to start marketing your firm to a wider range of customers. You, and your employees, will thank us later.
To learn more about how to diversify your law firm’s client base while protecting yourself from economic downturns, contact Boss Reporting today for a free consultation.