All lawyers are in business to serve clients. So long as the work being done for clients is profitable or can be used as a training ground for new lawyers, a case can be made for continuing to do it. The question to ask, however, is whether it is an adequate case. There are two scenarios in which lawyers are fully justified in walking away from potential or actual clients. Both scenarios come down to a matter of business judgment.
Scenario #1: The Unreasonable Client
It is a fundamental business and professional necessity that lawyers have a signed engagement letter for a new client, stating each party’s responsibilities for making the engagement a success. You will have an easier time meeting your client’s expectations and collecting your fee if you incorporate all essentials in the engagement letter.
Make sure clients understand that they’re entering a two-way relationship. The lawyer agrees to perform to the best of his or her ability in accord with professional standards, and the client agrees to communicate and cooperate fully – which includes paying the bill.
If the client says after all this detailing, “You’re too expensive,” you can respond by saying that other of your clients find that their investment in their matters with you are more than justified by the results. However, you can understand this client’s feeling and that this client should find other counsel because your fees are not negotiable. Often, this produces one of two results:
The client is impressed with your negotiation skills and wants to be represented by a tough, expensive lawyer, and therefore will accept your terms of engagement; or
The client leaves but becomes a great walking advertisement for you, convincing listeners that you must be highly qualified because you’re aggressive, expensive and unapologetic.
Going through this process of detailing and negotiating to prepare the engagement letter enables you to avoid a client with unrealistic expectations or demands and who believes that your estimates, whether of time or outcome or costs, are guarantees instead of informed estimates.
Discussing engagement terms will frequently uncover the client that will in the future express irritation with delay, who will chronically complain about everything, who will demand constant or instant attention, or who expects unrealistic or abnormal hand-holding.
Clients who cannot or will not discuss or agree on fees, or who will not sign a fee agreement or pay a retainer should be suspect. Clients who want to start now and pay later, or nit-pick over the fee, may be broadcasting a subsequent fee dispute or claim. (Note: Be careful, however, to distinguish between the nit-picking client and one who bargains assertively for the best fee arrangement he can get from you, but who honors the engagement agreement to a “T” once signed.)
Beware also of clients who:
Insist that their matter is “life and death”; such clients will often be future sources of last minute emergencies that at best are irritating and at worst can result in errors under pressure.
Use pressure tactics to urge that their matter be handled first once the engagement begins.
Demonstrate a bad attitude toward lawyers and the judicial system, or suggest that they know better than the lawyer what needs to be done.
Cannot articulate what they want you to achieve.
Rejecting such clients before representation will minimize the aggravation of fee collection difficulties as well as possible malpractice claims.
Scenario #2: The Client That Is Too Small ... or Too Big
A statistical premise called the Pareto Principle holds that, over time, most results are produced by only a few causes, generally in a proportion of 80 to 20. When applied to law firm marketing, this produces the conventional wisdom that 80% of a typical firm’s revenue is produced by 20% of its clients—the large, heavy hitters.
The loss of a large client is such a major risk that you may want to consider one of the most important axioms of business: make sure no single client exceeds 10% of your total revenue. Thus, if any one client "forgets" to pay you, or even leaves, the loss won't be so hard to handle.
I have seen too many firms focus on very few, large clients and be severely damaged when the fees from that client fail to continue—from dissatisfaction, change of billing attorney, merger, recession, or other unanticipated problems.
Some firms believe that having numerous small clients leads to greater revenue stability. However, studies suggest that small clients disproportionately drain the resources of law firms while providing a disproportionately small contribution to firm profits.
I am all in favor of seeking larger clients with more money and more interesting challenges. This effort, however, must be balanced to assure that the firm doesn’t wind up with only a few clients, large though they may be, who put the firm at risk if they should leave.
You may be willing to accept this risk for the short-term with the intent of getting more clients so that the percentage allocation to the “larger” client is reduced while maintaining the billings at the same level for the client.
If so, make no long-term technology or other expenditures at the behest of larger clients without some type of assurance that their business will stay with you until at least the amortization for the new expenditure is completed. Otherwise, a long-term strategy based exclusively on fewer, larger clients will almost always lead to disaster.
The Real Lesson on Clients
Firms grow based on their clients. Thus, lawyers must look for clients who have growth potential. In other words, "commodity" work will not result in high and profitable growth.
Highly focused and "high end" work will result in higher revenue and profits. When you choose clients who perceive the work you do as having high value, you will be able to charge more—even a percentage of the value of the work. This will get you out of the time modality of billing and into the value modality of billing, where the profits are significantly higher. It’s simple Business 101, but too many law firms ignore the lesson.
Edward Poll (email@example.com) is a certified management consultant and coach in Los Angeles who coaches attorneys and law firms on how to deliver their services moreprofitably. He is the author of Attorney and Law Firm Guide to the Business of Law: Planning and Operating for Survival and Growth, 2nd ed. (ABA, 2002), Collecting Your Fee: Getting Paid from Intake to Invoice (ABA, 2003) and, most recently, Selling Your Law Practice: The Profitable Exit Strategy (LawBiz, 2005).