Legal pipeline: Lessons in pipeline management from accountancy firms

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Four things you will learn from this Masterclass:

1. How accountancy firms use pipeline management
2. What law firms can learn in setting up future pipelines
3. How to manage pipelines of work effectively
4. How to use pipelines to improve management and financial returns

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Growth is the order of the day. Professional service firms,
having spent five years reducing costs and headcounts, restructuring their capital bases and outsourcing services are now aggressively pursuing market share. Law firms, like accountancy firms before them, are increasingly using pipeline management to formalise
their growth strategies.

Pipeline management is the means by which a business tracks its prospects' journey along its sales process through to the final commitment and eventual contract. It is a process of refinement and commitment as the firm carefully focuses its resources on targeting and winning prospects, and of increasing the interest and commitment of targets as they
are wooed.

The sales pipeline is a useful predictive tool in law firms. Business development directors use it to track activity levels among partners charged with targeting prospects, as well as to highlight events and individuals performing outside the norm. Finance directors are interested in the final stages of the sales pipeline: after the client has made a verbal commitment to buy, for instance. At this stage, the prospect will also be entered into the 30, 60 or 90-day sales forecast for the business.

However, its use in accountancy firms goes far wider than that. They have used increasingly sophisticated variants of the pipeline model and it is now firmly embedded in the fabric of partners' remuneration. Scott Barnes, CEO of Grant Thornton, says "we made a conscious culture shift away from measuring the past to valuing the activity on which our future depends. We wanted to understand the drivers, not look in the rear-view mirror."

A well-managed sales pipeline allows for visibility of potential income and is therefore valuable for the business to plan how to manage costs and resources. For managing partners and chief executives, the pipeline is an indicator of likely demand and can highlight the resource constraints or surpluses that might arise.

Accountants have the regularity of the annual audit upon which to base their pipelines. Law firms, by contrast, have notoriously unreliable sales forecasts. Apart from personal injury firms, which have books of bankable work, lawyers are dependent upon the ebb and flow of the economy and markets. This makes the requirement for effective pipeline management even more important.

What's more, in an industry that still struggles with achieving consistency of pricing and the discipline of client relationship management systems, let alone sharing information such as client plans, effective pipeline management is still a pipedream for most.

Nevertheless, the imperatives are there. More efficient pricing and process management in legal services mean that accurate sales forecasts and pipeline management are becoming a necessity. The business must understand where
the resource pinch points are and
when cashflow is going to be tight.

Lessons from accountants

In accountancy firms, the use of sales pipelines is one of the main factors in determining partners' reward and recognition, usually by means of performance management scorecards (alongside revenue, margin, client satisfaction/service and people management). This is a reflection of both cause and effect: the sales pipeline is used as a measure because it is effective, and it is effective because it is used as a measure. Such systems for measuring and robustly managing profit margins and client satisfaction are still in their infancy in many law firms.

Second, within the accountancy profession, the requirement to develop new business lies at the level of senior manager and above (equivalent to a senior solicitor or associate), with responsibility lying with the senior leadership team and partners. Working on individual and team sales pipelines is seen as an activity for partners. A sale, or bringing in client work, is not seen as something that can be delegated to junior staff for whom the emphasis is on developing networking skills and networks, gaining visibility and building a contact base.

Third, the emphasis is on qualification and refinement. As Barnes puts it, "you have to be brave and clear about what your brand stands for. We are about supporting growth, so we target prospects who will grow, or who will be flagship clients in our chosen sectors".

This is partly about allocation of resource: partner time is scarce and not to be wasted. The incorporation of sales pipeline management into the partners' reward mechanism naturally increases not only partners' attention to detail in selecting realistic targets, but also in delivering results by converting them into fee-paying clients. Qualifying prospects are removed if progress is not sufficiently rapid or if the potential reward drops significantly. They appear to have a much more ruthless approach in weeding out commercial targets compared to the traditional approach to business development in law firms.

Fourth, accountancy firms understand what is at stake. They tend to take a realistic look at the probable value of the client over five years to determine whether it should be a target. Law firms usually do not look at lifetime value, but rather the immediate opportunity and, as a result, as most will admit, cross selling is lacklustre at best, partly because there is no commitment to achieving it from the outset.

Finally, the pipeline depends upon having a sales process that is understood and visible. This can be as simple as
a flow diagram. It can, of course, be considerably more complicated and
there may be many variables.

However, the first step is to understand how leads become prospects and then clients (see box: Measuring the sales process). This is to do with how the firm guides the prospect through the various levels of commitment and decision making. To be effective, the process must be understood across the firm and supported with adequate resources, time and budgets, as well as measured and improved over time. It is this that the accountancy firms have down to a 'T'.

 

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Measuring the sales process

• Has the prospect moved through the pipeline as expected?

• Has the target become a client within the expected timeframe?

• Are there common pinch points?

• How accurate is the qualification process?

• Is there anything that can and should be done to improve the flow?

• Has your firm achieved the anticipated growth? If not, why not?

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Return on investment

Lawyers (and finance directors) instinctively love the intellectual rigour of a sales pipeline. Like any change management programme, introducing a sales pipeline process takes time, influence, consistency and persistent communication and leadership.

In addition to the direct linking of reward to pipeline success, the secret of its stickability is its success over time: improved forecasting, the sense of control over the future and, importantly, allocation of resources and budgets where they
are most needed. This is the real return on investment for a sales pipeline: improved efficiency and productivity.
It also allows for improved forecasting, but that is small beer compared to the efficiency savings possible in terms of resource management, working capital and marketing.

Implementing a sales pipeline requires a significant investment and ongoing overheads that will have to be carefully refined over time. There is an opportunity cost of partner time spent completing reports rather than getting out with clients: for this reason, measuring
activity (input) as well as results
(output) is worthwhile.

What's more, experience suggests that measuring individual partner success can sometimes be counterproductive: instead, group financial results by sector, region or client group to improve forecasting accuracy as well as to reduce the inevitable endless amendments to spreadsheets. The point of the exercise is not just to create a sensible level playing field for partner reward, but to grow the firm's client base in line with strategy.

 

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Creating a sales pipeline that works

• Identify and simplify the sales process. Ensure it is understood and supported across the firm.

• Separate leads, prospects and targets. Each has their value, but only targets should have resources put behind them as they will be the clients of the future.

• Refine the list, again and again.

• Ensure your marketing efforts keep the leads and prospects coming. They are the reservoir from which your targets will come in future years.

• Agree accepted levels of activity and responsibility, and tie these to reward and recognition.

• Avoid the temptation to become obsessed with automation: an Excel spreadsheet works fine. The point is to have a manageable number of carefully-focused targets.

• Monitor progress. Map each target’s stage of commitment, check where the firm loses potential sales and the ways in which individuals are or are not contributing to the growth of the business.

• If your sales pipeline is full but your sales forecast is weak, check:

  1. Your qualification process – did you properly sift the leads?

  2. Your sales process – does it engage your targets?

  3. Your sales people (partners) – are they good at closing?

Do what you need to do to improve the process for next time.

• Commit resources, time and determination. It is usually a lack of commitment that leads to failure to convert rather than a shortcoming in any skills training. It is always easier to find time to look after a current client today than to work on looking after the future clients of tomorrow.

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Client selection

So, having established your sales process, sold the benefits of the pipeline to the management team and partners, agreed reward and recognition metrics and responsibilities, what next?

Oddly enough, the secret of success and perhaps the step that lawyers may find hardest to accept is to decide not to act for certain contacts or leads. The pipeline is, in reality, funnel shaped, with many more prospects entering the funnel at the top than are ultimately closed as income-generating clients at the bottom. This can be for many reasons: the prospect turns out not to be one the firm wishes to do business with or because it finds an alternate supplier elsewhere.

Lawyers are by their very nature competitive and results driven. Give them a sales process, targets and reward and they will deliver an improved sales growth. It is critical that the sales growth comes from strategically-aligned profitable business from prospects that can and
will pay.

How can you ensure that this is the case? First of all, the firm should have a tightly-controlled qualification process by which a lead becomes a prospect or target. A lead is simply a name: an entity that is aware of the firm's existence. Before it becomes a target, before you invest resources in pursuing it, the lead needs to be qualified. This process
need not be too time consuming
and can involve filtering through the following checks:

• creditworthiness;

• sector/strategy alignment;

• strength of relationship/contact;

• strength of interest in the firm;

• size of opportunity;

• cost of opportunity;

• potential conflicts;

• resources available.

Only if the right answers are generated should the firm invest in pursuing a prospect. After all, what is the point in expending time and energy chasing a prospect which is unable to pay, with which you have little chance of success, or where the size of the opportunity is dwarfed by the cost of recruitment?

One partner recently talked about a lead he was given by a colleague who assured him that it was indeed a good lead, but no details were given. He travelled to Edinburgh from London for the meeting. As it turned out, the prospect was market testing and, while interested in the services offered by the firm, had reappointed its current auditor.

Key learnings

The accountants are much more
rigorous in their approach and management of the sales pipeline.
In talking to a number of leading firms,
the following key points emerged:

• the process is rigorously monitored and pursued;

• a cross-disciplinary and cross-sector matrix approach is adopted;

• trophy' opportunities are identified and driven by executive management;

• the linking of pipeline success, margin management, client service and risk management have been driving forces within the continued growth and profitability of the accounting sector; and

• developing and delivering sales is the responsibility of all partners.

Everyone has responsibility for driving forward team sales pipelines. This means that the partner in a regional office may be reporting about progress on a sales target to more than one senior executive within his organisation.

This focus has over the past few years become relentless. The appropriate resources and input need to be in place to ensure a smooth linkage between:

• target identification;

• marketing and business development activities;

• CRM tracking;

• client conversion;

• training; and

• teamwork.

In most law firms, developing and managing a sales pipeline is still a fairly solitary activity which is rarely done in collaboration with other lawyers or in a cross-discipline/sector/service matrix. There remains a great deal that can be learned by the lawyers. But, as the accountants have shown, it can be achieved with focus and teamwork.

 

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Glossary

Lead     An unqualified contact who may have had contact with the firm but has little or no commitment to the firm, its partners or services.

Prospect    A qualified contact who has been identified as strategically relevant and one that the firm would wish to have as a client.

Target    A prospect that the firm has decided to allocate resources to recruit as a client within a given timeframe and has added to the sales pipeline.

Client    A target who has been courted and who has made the decision to buy, has been sent a client care letter and is expecting to be billed for services.

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Sally Calverley is founder of Richmonte Wells (www.richmontewells.org.uk) and Simon White is founder of Simon White Consulting (simonwhiteconsulting.co.uk)

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