Why clients switch law firms [and 3 proven steps for increasing legal customer loyalty]

Law firms must provide true client value, in an increasingly competitive environment,

What’s covered in this article?

  • What’s powering law firm growth in America
  • The paradox of rate rises
  • How can law firms retain clients?

Legal services have always been a competitive environment, but the pressures law firms now face from NewLaw providers and rising client expectations have made the market’s volatility more acute than ever.

Law firms are not immune to the customer-led revolution that has characterized much of the new century. Small firms and larger players are no longer operating in a sellers’ market, where clients’ options were limited and price transparency was rare.

The game has changed. Legal counsel’s longstanding position as a cost center has become more distinct and new software and tools have given clients and in-house teams a greater ability to monitor and influence billable hours, timekeeper entries, and alternative fee agreements.

In this new era, clients can and will take their business to other firms, if your client experience difference is not predictable and pronounced. Here are the nine leading reasons clients switch law firms, according to Altman Weil’s 2017 Chief Legal Officer Survey:

  1. Poor client service
  2. Lower fees
  3. Legal expertise
  4. Matter efficiency
  5. Conflicts
  6. Departure of partner
  7. Firm resourcing
  8. Geography
  9. Predictability of fees

What’s powering law firm growth in America

Despite this worrying evidence about client departures, the industry-wide growth picture is relatively positive. America’s top law firms are experiencing some of their strongest growth in a decade, according to the 2019 Citi Hildebrandt Client Advisory.

The firms who are succeeding – and those who will continue to do so – are those who have made concerted efforts to deliver on client needs.

The paradox of rate rises

But here is a caveat. It’s important to understand that the cause of much growth is being driven by a rise in billing rates, not demand — a worrying fact in light of that client departure data highlighted by Altman Weil. A well-respected annual legal market study from Thomson Reuters and the Georgetown University’s Center on Ethics and the Legal Profession put it as follows:

“Given the tepid growth in demand for law firm services, the increased willingness of clients to move business to lower-cost firms or alternative service providers, and the continuing client push back on rate increases (as reflected in declining realization rates), it is counterintuitive that firms would propose aggressive rate increases or that clients would accept them. But that appears to be what happened.”

Competition remains intense, right across the American legal market. And we’re not talking about competition for clients here: we’re talking about competition for talent. Partners are being poached just as often as clients, and as Altman Weil reported in 2017, there were a record 100 mergers of U.S. law firms in that year alone. The impact of this trend is not to be understated. When firms merge and key legal talent leaves, longstanding clients can do so too.

How can law firms retain clients?

It’s clear then that one key way to retain important clients is to retain high performing staff. What else can your firm do to keep its best client accounts?

  • Provide advice with a clear business alignment: It sounds so simple, but in truth, it’s a hard-fought and ongoing process. Firms need to find ways to reduce the busywork, distractions, and low-quality client prospects that steal valuable account time from loyal, valuable customers.
  • Address concerns about legal service costs: The frustration about the price of legal services has long been a thorn in the industry’s side. Perhaps the only way to address these concerns openly and positively is to start providing additional value to clients.

Prioritize communication and collaboration: That term ‘adding value’ has become a cliché in recent years. As a law firm, it may be more appropriate to think about adding strategic value to strategic accounts. That may involve having honest conversations about alternative fee arrangements, genuine adjustments to the scope of a case, and legal issues management.