November 11, 2008
Client Stages - A new way of looking at a client’s life cycle
Inventory aging buckets are boring. Useful, yes, but still boring. Looking at how unbilled or uncollected hours have been spread over 30 day increments reminds me of learning to count by 2’s. There IS a business need for dissecting Inventory into manageable buckets, but that is for another post. Even before hours start to age, it is important to understand if we are growing the number of hours being worked. It’s simple. Look at this year, look at last year, do the math – better/worse. Right?
At a basic level, yes. However, what if you take the concept of creating Inventory buckets and apply it to the growth in production over time? You would either create another collection of buckets (5%, 10%, etc.) OR you would have an entirely new perspective on the development of your client base.
At Redwood Analytics, we call this Client Stages. These Stages allow us to analyze the client base in ways beyond a simple ranking of hours or growth rates. The basis for the Stages is the growth of the hours worked over the last 12 months (Rolling 12) compared to the 12 months prior (Prior Rolling 12). By using the last 24 months, independent of calendar years, we capture the growth from 2 full business cycles rather than a partial perspective such as year-to –date. Once the growths rates are calculated, the clients are categorized into the following lifecycle stages:
| ACTIVE | Work within the last 12 months |
| New & Renewed | Work within the last 12 months, no work in previous 12 months |
| Thriving | 100% growth in work vs. prior rolling 12 months |
| Growing |
Between 20% and 100% growth in work over prior 12 months |
|
Stable |
Between -20% and 20% growth in work from prior 12 months |
| Declining | Between -50% and -20% growth |
| At Risk | More than 50% decline |
| INACTIVE | No work in the last 12 months |
| Dormant | No work in the last 12 months, but work in previous 12 |
| Lost | No work in last 24 months |
Having the client population dissected into these stages allows for much broader analytic review. Now rather than looking at the clients as a total pool, we can analyze them based on their lifecycle stage. Identifying clients who are declining or at risk of going dormant becomes easier and provides you with meaningful, decision-making information very quickly. If you are trying to determine where to spend client development dollars, focusing on strategic clients in some of the underperforming stages is a good place to start.
The more that you can look at your client base from different angles, the more that opportunities will reveal themselves to you. Client stages are just the beginning of a forward looking view at your firm’s health—which in large part is based on its clients. Take some time and consider the value that could be gained from examining clients based on how long they’ve been with the firm; their ranking based on the revenue potential they bring to the table; or perhaps a rating system based on key metrics like realization, production, and cash cycle. Inventory aging buckets are useful from a billing & collections standpoint, but don’t limit yourself to one perspective of your firm’s lifeblood.
–Jonathan Huyard
Jonathan Huyard is a senior consultant with Business of Law Services team for Redwood Analytics/LexisNexis.
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