The Chanticleer column in this weekend’s Australian Financial Review is titled ‘It doesn’t pay to be a loyal customer’. The article is a post-Hayne, post several reductions in interest rates, look at bank mortgage rates and analysis undertaken by Matthew Wilson at Evans & Partners that suggests:
“In Australia, the banks enjoy a profit benefit of about $3 billion a year from exploiting the difference in mortgage rates between existing and new customers”.
I’m not going to comment on whether or not that statement is correct/true (although a hunch would suggest it is), but it did make me think that in the professional services (read ‘legal’) sector it absolutely holds true that it doesn’t pay to be a loyal customer/client.
What do I mean by this?
Well when pricing services to new customers/clients – especially in tender situations, law firms are far more willing to:
- Buy the work to cement the relationship
- Offer volume discounts
- Deeply discount on rack-rates
- Agree to discounted fixed fee arrangements
- Agree to risk-sharing arrangements
Indeed, more often than not the average billing rate (ABR) and the average realisation rate of a long-term customer/client will be higher than a new client, while lock-up days will be lower.
As Chanticleer says, it really doesn’t pay to be a loyal customer these days!
As always though, interested in your thoughts/views/feedback.