Firms Missing Out on Significant Revenue from Referrals & Cross-Selling

8 November 2016

Most law firms are missing out on significant revenue due to their ad-hoc approach to referral and cross-selling practices, according to new research by the Australasian Legal Practice Management Association (ALPMA) and Julian Midwinter & Associates (JMA).

“Few firms have adopted a structured, strategic approach to their referrals and cross-selling programs”, Mr Andrew Barnes, ALPMA President and CFO of the Lantern Legal Group said.

“Those firms tracking revenue from referrals and cross-selling are generating strong revenue of more than half a million dollars per year, so it is well worth the effort and investment required to put together a comprehensive program, “ he said.

Improving Referrals

Referrals programs are designed to encourage firm clients, other law firms and non-legal professionals, like accountants, psychologists and financial planners, to refer new clients to a law firm.

“Like anything worth doing, it’s not necessarily easy to increase the effectiveness of your referral program, but if you want it to happen in your firm you need to intend it, plan it, measure it, resource it and lead it,” Ms Amy Burton-Bradley, Partner at JMA said.

According to the 2016 ALPMA/JMA Referrals & Cross-Selling in Practice research, the most popular activities and techniques to drive referrals include target lists, active networking and hosting of events, direct marketing and social media, as well as providing resources and training opportunities to upskill their lawyers in the referral arts.

“We were surprised to find that 50% of firms do not bother to recognise or reward their external referral sources,” Ms Burton-Bradley said.

“Manners cost you nothing and as one respondent pointed out the best reward is something that your referral source will actually value. This can be as low cost as a lunch or a donation to their favourite charity, or a no-cost written thank you acknowledging appreciation of the referral."

Improving cross-selling

Cross-selling programs are designed to encourage clients who engage with one of your practice areas to use services from other areas as well.

“Unresolved questions around who ‘owns’ the client relationship—the lawyer or the firm—and traditional practice group models create barriers to effective cross-selling. Such barriers hold too many firms back,” Mr Barnes said.

“To maximise firm growth opportunities, law firm partners and leaders need to embrace a culture where the firm owns the client, respects the source but does not permit silos to form and work against internal referrals. This is difficult. Programs for origination credits are not one size fits all and distract too many firms too often,” Mr Barnes said.

Only 28% of firms are incentivising this behaviour and making internal referrals a norm in their firms. “Given the known difficulties with finding the right incentive program, this low number will not surprise. Equally, it ought not close off future consideration of such a program,” Mr Barnes said.

Ms Burton-Bradley recommends that firms consider re-structuring their practices around industry groups (like small business or construction) or client needs, rather than by practice area (e.g. family law becomes relationship law).

“The best way to approach this is to have a mindset of ‘cross-serving’ rather than cross-selling, where addressing client needs sits at the heart of what you do,” she said.

The firms who do well at cross-selling use a variety of rewards and recognition, from the no-cost thank you and acknowledgement internally, right through to a bonus based on the value of the cross-sold work.

Best-practice tips

The ALPMA/JMA research also revealed some best-practice tips for firms looking to stand out from their competitors, including:

  1. Create standard procedures at the end of each matter to systematically support cross-selling - only 20% of respondent firms do this.
  2. Develop a pursuit plan to reach target clients through referral sources - 75% of firms don’t have one.
  3. Maintain a target prospective client list - 64% of firms don’t have one.
  4. Define revenue targets for referred work - 96% of firms don’t do this.
“Referrals and Cross-Selling In Practice” Research

123 law firms from across Australia and New Zealand participated in the 2016 ALPMA/JMA Referrals & Cross-Selling in Practice research, conducted via online survey in September and October, 2016.

2016 ALPMA/JMA Referrals & Cross-Selling in Practice research report is available now.

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Adding Value to the Business of Law

The Australasian Legal Practice Management Association, (ALPMA), is the peak body representing managers and lawyers with a legal practice management role.  ALPMA provides an authoritative voice on issues relevant to legal practice management.  Members of ALPMA provide professional management services to legal practices in areas of financial management, strategic management, technology, human resources, facilities and operational management, marketing and information services and technology.