Whether the reduction of smaller clients is a sound financial position for a large firm to take depends upon the law firm’s structure, revenue needs and profitability model. Every firm, big or small, should know their profitability threshold – as should their lawyers and perhaps even their clients. There are such things as good business and bad business. Most big firms have a “go/no-go” review process for prospective clients for this very reason.
It is very unfortunate that a Bryan Cave’s internal directive was leaked to the media. The missive called for retiring small client accounts at or under $20,000 annually. Assuming we’re privy to the full text of Pritchard’s message, that “these new clients had overall margin averaging -29% and realization of 76%,” one should conclude the directive is a sound business decision.
Relinquishing business that is neither productive nor profitable has several benefits for a law firm. It frees up the lawyers so they can invest time in other activities such as business development, existing client meetings (non-billable), community service and pro bono work. Yes, there are opportunity costs when you walk away from business, but successful business leaders focus on what is in the best interest of the organization. Clients, too, may actually benefit from taking their business to a firm where it is more valued. In-house counsel and business leaders can and will find qualified, reliable and efficient counsel at smaller firms.
Gina F. Rubel, Furia Rubel’s CEO, was interviewed by Law360 and quoted in their article, Firms Face Big Risks In Culling Small Clients. Read what else she had to say at: http://www.law360.com/articles/661558/firms-face-big-risks-in-culling-small-clients (Subscription Required)