Posted on April 22, 2020 by Silvia Coulter and Steven Bell
Law firms have long employed a standard practice in predicting revenue: this year’s revenue + X%. That’s fine, as far as it goes, however, this approach provides only a limited view of all of the opportunities and all of the revenue potential in the firm’s pipeline. Traditional commercial businesses long have utilized a simple business tool, the weighted pipeline, to better drive and forecast revenue. Perhaps it’s time for law firms to evaluate this tool, as well.
First, we need to draw a distinction between a pipeline, and a weighted pipeline.
Our definition of a law firm pipeline consists of five discrete stages of the sales process:
Pipelines are great tools to help firms track activity across the firm and ROI, but they are only as good as the information that goes in. That’s why we recommend that every piece of support (research packet, resume, slide deck, proposal, etc.) prepared by the marketing or business development team be linked directly to one of the stages of opportunity on the pipeline. Otherwise, the pursuit is a random act of BD and not directed at a real opportunity.
Law firms are experienced in accounting for revenue at Stages 4 and 5 of the pipeline, but have not perhaps considered how to do so for opportunities found in Stages 1, 2 and 3. The weighted pipeline is the tool that allows businesses to forecast the revenue potential resident in these earlier stages.
Your firm probably already has a pipeline that describes the various stages of opportunities. To create a weighted pipeline:
The sum of all five entries in the revenue column is a broader and longer term look at revenue opportunity for the firm. It will, by definition, be larger than the revenue streams that most firms normally consider. Note that the efficacy of a weighted pipeline depends on the ability of lawyers and staff to make reasonable estimates of the size of potential engagements, and realistic estimates of the chances of closing. Most firms find that over time their experience with estimates of engagement size and closing ratios become “more real.” When they do, the weighted pipeline becomes a better revenue-prediction and management tool.
Pipeline management is where the rubber meets the road when it comes to how lawyers are spending their sales time. Either the opportunity is real or it is not. If it is real, then estimate the dollar value of that potential opportunity and focus on next steps to move it through the sales pipeline
In this article, we’ve only scratched the surface of the weighted pipeline topic. Feel free to contact us to learn more about how weighted-pipeline management can literally change the way the firm is thinking about and driving new revenue opportunities.
For a copy of our Pipeline Form, please email us at firstname.lastname@example.org.