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Why Cross-Selling Legal Services Is Hard In One Word: Value (Part 1)

One the great buzzwords of law firm marketing is “cross-selling,” leveraging a firm’s existing relationship with a client in one area of the law to get the client to use the firm in another. It makes eminent sense for a firm strategically. It make sense for a firm financially. And it is hard. Very hard.

Cross-selling sits at the top of the law firm business development wish list, behind institutional clients and inclusion on “preferred lists” for major financial institutions and corporations. And it should. Academic literature will tell you that it is far, far cheaper to keep an existing customer than to obtain a new one. While there are no definitive numbers, it is clear that it is far easier to sell to existing customers than new ones, existing customers are likelier to comprise a larger share of your future revenues and attracting new customers costs a company somewhere between 4 and 8 times more than retaining an existing customer.

All of these facts augur that cross-selling should be a priority for law firms. However, as many people in the industry know, cross-selling is something that is very difficult to do for a variety of reasons, some of which are quite nicely spelled out here. Some reasons are structural – a client has no need of new legal services, compensation schemes lack proper incentive structures, the firm lacks relevant expertise. Some barriers are cultural – the firm doesn’t emphasize information sharing and communication, attorneys think about clients as “their” clients rather than “firm” clients. The list of obstacles typically identified is quite long.

I would like to focus on one reason that I believe is at the heart of the cross-selling problem for law firms, and one which is often overlooked: value. Most discussions of issues in cross-selling start with a basic assumption – that a law firm has something of value to give to the client beyond its current legal advice. That, of course, is not necessarily the case. However, because most discussions about cross-selling challenges assume the firm already has something of value, they tend to revolve around the internal barriers to successful cross-selling.

But let’s assume that we are dealing with a firm that has both a relevant practice group and well-respected attorneys capable of performing the client’s work. Let’s further assume that the law firm is not impeded by structural, personal or other issues that would make it difficult to create a cross-selling opportunity. The attorney representing the client wants to cross-sell, management wants to cross-sell, the expertise is there and the resources are there. In short, everything is as optimal internally as it can be.

Now we come to the critical question: what value does the firm bring to the client in that cross-selling opportunity? Too often, lawyers believe that superior talent is equal to value. It isn’t.

While lawyers may feel that they should be able to compete based on talent, in many cases that simply isn’t true because the baseline legal representation that the client needs can be met by a number of different attorneys who are all above a minimum threshold. Sure, for bet-the-company litigation or a company-altering M&A decision a client is going to look at the landscape and choose the best that money can buy; for matters of lesser importance, many firms will fit the bill, and expertise is just one facet (albeit the most important one) of an overall value proposition.

To illustrate this, let’s assume that a GC rates its law firms on a scale from 1 to 10. If a firm is at a 7 or above, the GC uses the firm. Furthermore, let’s assume that the satisfaction score is based upon a composite of multiple factors: quality of the legal representation, responsiveness of the firm and price.

Now let’s assume that the GC is represented by Bob at Smith & Smith in its corporate work, which has a satisfaction score of 8. For its litigation work, it uses Mike at Jones & Jones, which also has a satisfaction score of 8. Mike would like to perform GC’s corporate work. To do that, it needs to provide value to the GC. How does Mike achieve this?

  1. He can try and appeal to the GC by claiming the Jones & Jones lawyers are better. Since Smith & Smith already performs solid work, that appeal has little value to the GC, even if true. Yes, Jones might do better work, but it also might not. If the GC’s normal corporate work only requires a level of 7 to do and Smith is performing at an 8, even if Jones is, theoretically a 9, there is a risk to switching for which there is not much added value. Only if the GC has a complex matter that requires a 9 is there substantial value in competing solely on expertise.
  2. He can try to appeal on price. Decreasing the price of Jones & Jones’ corporate work to a level below Smith obviously adds value. The measure of that value will, of course, be weighed against the risks of switching. All other factors being equal, level of service, quality of legal advice, etc., we would expect the GC to switch if the value of the lower price more than offsets the potential risks in using a new attorney.
  3. He can compete on service. Just as in the case of price, if the value of the potentially better services is greater than the risks of switching, we can expect the GC to switch firms.

All of this is simply to say that it is the external value (and perceived value) delivered to a client which matters in cross-selling at the end of the day, not the absolute ability to deliver better expertise, price or service. Better legal work, while always desired, is not necessarily more valuable. There are no extra points for crafting the world’s most elegant merger agreement if a simpler, cheaper one will do the trick. The law school joke that one’s goal should be get the lowest passing bar score should be on attorneys’ minds when they think about what value means to a client.