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Understanding the 3 Client Lifecycle Stages of Law Firms

6 mins

Law Practice Management

The United States is home to 443,565 law firms that collectively generated $330 billion in revenues during 2019 alone. With so much money on the line and aggressive competition for similar casework, it’s surprising that some firms continue to lack structure around their clients' different lifecycle stages, a foundation that can further optimize operational efficiency and fuel future growth. This neglect is often due to a mish-mash of business operations in place and attorneys who are focused on the now, not what’s ahead of them a year or two from today. 

Let’s dive into how your law firm can leverage these three client lifecycle stages to grow your practice, improve employee utilization rates, and forecast future revenues.

1. Acquisition 

The first step for any successful practice is to acquire new clients. During this stage, law firms must determine how much they’re willing to invest in their acquisition process. Unfortunately, firms aren’t always thinking this way, despite their immediate similarities to professional services organizations that depend greatly on human capital (labor) and various vendors and partners in place to support their branding, digital marketing, media buying, print advertising, and website development needs. All of these employee-related and partner costs need to be accounted for when you’re trying to add new clients.

In addition to determining these costs, you should also ensure your practice has the necessary intake systems and structure to support client acquisition efforts. Fundamentally, your firm should have organization around:

  • Establishing appropriate source attribution. Are clients submitting forms, calling your practice directly, or engaging with your firm from another touchpoint such as social media channels? This data is a treasure trove of information that can help your firm assess the return on investment (ROI) for any marketing efforts. Simply put: Put money into sources that drive results, and omit channels that are expensive and fail to cost-effectively attract new clients. 
  • Quantifying the intake. Your firm can segment clients based on different criteria to determine the value of each potential case. This model most applies to litigation, and this approach can be based on expected settlement outcome and bucketed into different categories to determine future casework. For example, a simple naming convention such as level 1-3 (L1, L2, L3) or a more applicable moniker to your practice can sort smallest settlements to largest settlements as a starting point to organize potential cases coming through the pipeline and easily disqualify prospective clients if they fail to match baseline criteria. A standard “tag and bag” program if you will. 
  • Expediting the potential engagement. Some high-profile law firms will fly to meet potential clients at their homes to discuss high-profile cases, and they have the resources to go above and beyond what midsize or small firms can spend to generate new casework. Your practice must know your audience, and if the case is lucrative, your top attorneys should react with urgency to land these clients and keep them away from competing practices. It’s a race to the finish line. 

With these processes in place, your firm will have the structure available to put a dollar figure against potential casework and have tangibility around the investment needed to acquire that client. 

2. Case Management

After you sign a client, your firm’s strategy and tools must shift from acquisition to management, and since you’re now practicing law, operational metrics come into greater focus during this engagement. Whether your practice bills hourly or you’re a contingency firm, staff utilization applies to both models and should form the foundation of future profitability. For billable firms, this step is easy, since you’re billing clients for time spent on their cases. 

For contingency-based practices, the steps are a bit different. Since contingency firms receive payment once cases are settled, these practices are incurring expenses until there’s a resolution. A major personal injury case might last many  years, so firms in such situations are allocating available finances and credit lines to pay their staff, rent, and any ancillary expenses until their clients’ cases reach a conclusion. Depending on the size of your practice, you could very well be running on debt at certain points in the litigation. 

If you’re a contingency practice and have experienced the headaches of borrowing too much credit, you can start on a path toward addressing these issues by enhancing your employee utilization. By lacking formal processes and tools for project planning and time-tracking, how will your practice allocate resources effectively for future cases? A blended hourly rate (total revenue/total hours worked) is one key performance indicator (KPI) that can shed new light on your practice’s future performance to grow either vertically or horizontally:

  • Vertical growth: Your practice isn’t expanding the hours allocated each week, but rather generating more revenue per hour by improving efficiency across the firm and increasing margins.
  • Horizontal growth: If the blended hourly rate is profitable enough to expand your practice, your firm can hire more employees to expand their practice. The danger with this model, however, is that if revenues drop, margins will as well, and if the downturn is drastic, you may have to cut back on the workforce. 

Law firms that have a firm grasp of their blended hourly rates can not only apply such KPIs to their resource allocation for client casework, but also their employees’ compensation and bonus structure. If your practice grows profitably, your firm can easily tie employee contributions to client casework/goals to the blended hourly rate, and this type of case management foundation can align all partners, attorneys, and administrative staff about how their contributions will propel the firm’s future success. 

3. Resolution

The final step of a law firm’s client lifecycle stage involves the resolution phase. This process is crucial to forecast future revenues, a strategy that many practices lack altogether. When meeting with firms, Practice Alchemy often asks clients what they expect to generate in the upcoming year in revenues from their forecasted casework, and few can ever answer this simple question. Why? By their nature, attorneys are focused on what’s in front of them, their immediate casework, and not the revenue of their cases 12 months from now. 

If you’re a personal injury firm, you may not settle a case for a few years or even longer. During this timeframe, you’re incurring expenses, but are you actually attributing all of these finances to the appropriate sources? This is where forecasting comes into play. Let’s say you’re a contingency firm with diverse practice areas and settle 70% of your personal injury cases. By segmenting your casework by different levels as detailed above, it will be easy to identify data to support forecasting. The example below is a generic model for a firm that handles 18 personal injury cases annually. 

  • L3: Three cases at $1,750,000
  • L2: Five cases at $550,000
  • L1: 10 cases at $215,000 

Using this generic case segmentation model, your total casework value would be $2,515,000 for personal injury cases annually, and at a 70% settlement rate, your pipeline would be $1,760,500. By having the necessary forecasting and consumption model in place, your firm will have a firm grasp of how your practice’s pipeline works and the rates at which casework progresses and closes to help with forecasting future revenue. This level of insight will enable your practice to plan ahead, anticipate potential sales and casework fluctuations, and assign resources appropriately to avoid taking on unnecessary debt. 

Stop Trying to be a Master of All

Law firms are such fast-paced environments with many moving parts across the entire practice that it can be challenging to establish the necessary foundation to target future growth. Your practice and its attorneys should be focusing on practicing law and reaching client settlements, and not on being an expert in all facets of your firm, especially regarding marketing, client acquisition, intake, and forecasting tactics. 

What you should ask yourself, however, is how will your practice make improvements throughout the three client lifecycle stages moving forward? This answer may not be readily available internally within your firm today, but there are solutions available that can address your practice’s unique needs and enable your firm to focus on what matters most: your clients.

Built by lawyers for lawyers, Practice Alchemy helps law firms optimize their marketing & advertising, consulting & operations, and bookkeeping & accounting to improve their client acquisition process, operational efficiency, and long-term growth. Focus on the quality of your firm’s work, revenue, and profits, and leave the rest to us. 

Request a complimentary assessment with Practice Alchemy today

Matthew Iovanni