A friend who’s in marketing for a large west coast law firm recently analyzed average revenues per client. She took two groups: clients serviced by one practice area, and clients serviced by four or more practice areas. Average revenue in the former camp was $500,000. The latter? $1.5 million.
She dubbed the resulting cross-selling initiative in the firm the million dollar mission.
Countless studies report that selling to existing clients is far cheaper (as much as four times less expensive) than trying to sell to new clients. Yet firms struggle to implement effective cross selling initiatives, and those that do often fail. Why are law firms (and accountin firms, and investment banks) so bad at it?
1. Lack of incentives. Outdated compensation models (particularly in the U.S.) fail to compensate team-selling, and instead try and reward individuals for business that they generate on their own.
2. Lack of measurement. If firms (law firms, accounting firms, investment banks) don’t measure the details of where the revenues came from, how they obtained the business or what activities are responsible for the revenues, they are completely incapable of identifying where the opportunities for future revenue growth lie. The business development at that point can be described as an “answer the phone when it rings” approach.
3. Lack of knowledge. Ask any lawyer at a moderately-sized to large law firm about the firm’s other practice areas, and you’ll frequently get a blank stare. (Not really. They’ll actually try and tell you about a lot of things, most of it half-remembered principles from whatever related class they recall taking in law school.) I know of just a handful of firms that actively encourage their professionals to educate themselves about their other practice areas, and even those efforts are mostly voluntary.
4. Lack of awareness. If the lawyers don’t know what other services the firm offers, how can the client possibly be expected to know? It’s criminal when a client hires another firm to do work that your firm can handle simply because they didn’t know you could do it.
Two items brought this home for me in the past couple days. First, I was struck at the AAM conference how many accounting firms are struggling with this very issue. Compared to law firms, accounting firms are doing a better job of aligning themselves around “products” (bundled packages of services targeted to specific types of clients). However, they’re still not measuring much in the way of segmentation information that would yield actionable information about how to grow the business.
Second, I read an article in this month’s Forbes about Tom Jones, Citigroup’s chairman of the Global Investment Management & Private Banking Group. (Interesting historical footnote: this is the same Tom Jones who, armed with a rifle, led the militant takeover of Willard Straight Hall at Cornell in 1969.) Jones’ entire job is about cross-selling, and by all accounts he’s doing a phenomenal job of it. From the article:
In a bear market year , when many fund groups lost assets, Jones’ took in $65 billion in new money. The lion’s share of that was due to the cross-sell. In 1997 only 27% of all funds sold by the Salomon Smith Barney retail sales force were Citigroup products. [SSB is a part of the Citigroup family.] Now the share is up to 47%. Primerica [another Citigroup subsidiary] increased its proprietary fund sales to 67% of gross U.S. sales, up from 50% in 2000.
In other words, cross selling alone accounted for nearly 11% revenue growth in a bad year. Jones accomplished this by overcoming seemingly insurmountable obstacles – especially compensation and confusion. Jones “had to negotiate a myriad of treaties among retail brokerage units, traditional bankers at Citibank both here and abroad, private bankers catering to high-net-worth clienst, Primerica insurance salesmen serving middle and lower income households and Travelers life insurance operations worldwide.”
The lessons from Citigroup’s success are important, and services firms would do well to heed them:
- Provide strong direction. If Citigroup wasn’t clear in its goals, it would have been unable to clearly articulate the vision or the reasons for why change was necessary.
- Demand strong leadership. Jones was every bit the statesman, striking deals among any number of different groups. But at no time did he stray from Citigroup’s stated goals. In fact, he walked away from one unit that felt it got a better deal by offering competing products from Fidelity. Rather than sacrifice the company’s larger goals, he left the unit alone.
- Measure performance. If Jones had not achieved the growth he ultimately saw in 2001, adjustments would have been necessary. If Citigroup didn’t measure revenue generation and the associated activities in support of that revenue, it would have been impossible to know if it was working or not. (Unfortunately, hunches alone are not conclusive.)
There is no magic bullet to develop a successful cross selling program. Key to success is first identifying the goals of the program. Once the goals are clear, the firm needs technology that can facilitate the capturing of necessary information (demographics, segmentation, who do we know at the client, what have we done in the past) and the easy dissemination to the key players. That’s when it gets fun – and where there’s real money at stake.