The Great Revenue Deception

Revenue is so deceptive. As long as we have growth it's all good. But, it hides so many sins and can be so misleading. It can also mask great success. Too bad it sits right up at the top of the income statement for all to see.

Hiding the Truth

Revenue growth has this nasty habit of hiding the truth. Not for all firms but more than half. Missing the truth can be devastating.

Growth in the top line rarely causes a firm to go examine their individual client's year-over-year revenue trends for the last 3 to 5 years. Lack of growth does.

Growth masks our client losses and possible signs of impaired client relationships. There’s always client attrition—but I'm talking about major losses—clients whose fees are slowly slipping into permanent decline.

Legal Issues are a Way of Life for Clients

Litigation, transactions and substantive legal issues are way of life for clients. It is the rare client with a single litigation or one non-recurring set of needs. Yet, firms accept revenue losses as inevitable—representing the nature of clients—litigation “comes and goes”—a transaction “comes and goes”.

The high-performing law firms carve out continuing streams of work with the same group of clients. They seek out these clients with recurring work and make sure they’re at the top of the client retention list.

Seeing Revenue Differently

High performers examine the year-over-year change in overall revenue for every major client—ideally the top 50 or 100. They also examine revenue by timekeeper, revenue by practice and more. High performers look for any hint of change in each and every major client and potentially major client. Revenue is not the end goal—it is a performance indicator telling us if a relationship has turned.

So before we get excited about our revenue growth ask a few questions:

  1. What is the annual growth rate for the firm’s 100 largest clients—this is year-to-year growth in each year over the last 5 years:
    - Anything with flat or declining numbers merits immediate attention—find out what’s wrong and why.
    - Growth demands we ask what we did right and why—and demands we immediately share these insights with the partners.
     
  2. How many clients have moved up on the top 100 and how many have moved down? Is the major trend up or down—a downward move suggest weakness in the revenue base.
     
  3. Calculate the amount of lost revenue from these top 100 clients and give the result to the relevant partner for each client—we know of least 11 law firms who would be growing in double digits if they kept only half the revenue they lost. These 11 firms now live by the revenue analysis—and have aggressive programs to protect the revenue and client base. These include:
    - Swat team of business development savvy partners to revive and recover relationships where revenue is in decline.
    - Beefed up client teams.
    - Adopting new partner goals to drive specific changes in the client relationship.

For the firms with no signs of revenue loss use a swat team to go build even better relationships before anyone else tries.

Law firms can put the power of revenue analysis to work immediately. The modern accounting system and Excel spreadsheets make this analysis available in a day. This means you can start protecting and building high-quality revenue tomorrow.

MBR