As a lawyer, you are well educated in the matters of law and critical thinking. But what you may be forgetting is that you need to build your business. Part of growing your practice is understanding how to manage your prospect flow and track your return on investment (ROI).
Over the last few years, I’ve gone out of my way to ask lawyers where the majority of their clients come from, how many touch points it takes to move someone from prospect to client, and what the lifetime value is of each client.
The answer to the first question—where your clients are coming from—typically includes “from referrals,” “online,” and “I don’t know.” It’s questions two and three—the number of touch points and the lifetime value—that most lawyers can’t answer.
Recently, while having coffee with Mark Britton, CEO of AVVO.com (http://avvo.com), we discussed AVVO’s new prospecting tool Ignite. Britton and the AVVO team are creating a tool to help lawyers track their lead sources.
That conversation inspired this post. Here are a few suggestions for tracking your own leads:
Know the source: Understanding where each lead comes from will help you focus your efforts on the most productive outreach programs. Where law firms often go wrong here is in not asking enough questions. Most people do not come to your law firm from one source alone. It might start with a referral, followed by a visit to your website, where they might sign up for your newsletter. Finally, the process ends with them calling you one month later.
Track your information: Not many people enjoy filling out paperwork or TPS reports, but they do serve a purpose. It is crucial that you track where your prospects are coming from. Just the other day, a lawyer told one of our team members that he “just has a feeling” about where the firm’s clients are coming from. Your clients do not want to hire a law firm that “just has a feeling about how they should win a case.” This holds true for your business as well. To maintain a thriving business, you cannot rely on feeling with regard to client acquisition. You need either a paper or online form, which you, your staff, or your answering service should fill out every time someone contacts you. Questions should include:
- Where did you find us?
- Have you seen our website?
- Have you contacted any other firms?
- Have you worked with any law firms in the past?
- Were you referred to us by anyone?
The information from questions like these will help you ascertain how many touches it takes to obtain a new client.
Assign value: While you are tracking your prospects, you should also be creating a method for determining how much a client is worth. Even in practice areas like bankruptcy, where you might have a standard flat fee, determining the full lifetime value of a client is very important. The quick way to figure this out begins with a basic spreadsheet. Take your average client (if you have more than one type of average client, create a spreadsheet for each one), and track your expenses and revenue from his or her case. Consider the following:
- Cost of achieving a successful outcome
- Reimbursement of any expenses by client or third party
- Percentage of cases that aren’t won
- Percentage of bad debt (clients that do not pay)
- Average gross revenue of client for traditional transaction
- Additional service(s) clients purchase beyond traditional transaction
- Average referral rate of clients
All of these numbers will help you begin to sketch out the lifetime value for a new client.
Analyze your marketing methods: After several months of tracking your sources of clients, diving into the value of different kinds of clients, and determining how many touch points it takes for someone to become a client, you should be armed with enough information to revisit your marketing model. If you find that most of your business comes from referrals—but almost everyone says they visited your website before calling your office—you should make sure your website looks professional. If your prospects look at your LinkedIn profile before hiring you, take the steps needed to improve your profile.
Look at your return on investment: Once you establish the value of a client, the cost of reaching that client, and the path that people take to reach your firm, it is time to look at your ROI. The equation is simple:
Cost to acquire new client – profit from client = ROI
Let’s break these down:
The cost to acquire a new client is a combination of overhead expenses, payroll, advertising spending, media buy, website, and any other associated expense in the process.
The profit from the client should be separated into two parts: short term and lifetime. This prevents you from overextending your marketing budget; sometimes the lifetime value of a client may be a lot of money, but spread out over ten years.
Now, compare all of your numbers and assign a weighted average to the short-term and lifetime value. Let’s say 70/30 respectively. If the lifetime value of a client is $3,900, but the short-term value in year one is only $1,700 of the total lifetime value, then we may assign a current value to a new client as $2,367.
In real dollars, the ROI looks like this:
Total cost to obtain new client: $780
Total revenue from new client: $2,367
Why does this matter to your practice?
There are a number of reasons that you need to know this information. For some lawyers, they may be overspending on activities that only generate a small ROI. They might be getting a high volume of new clients, but at too high a cost. On the other hand, there are law firms that are not spending enough on marketing. They might be getting clients—but with just a twenty percent increase in marketing spend every month, they could increase their client flow to a level that increases their overall ROI.
Regardless of your firm’s current needs, having this data will keep the business of running your firm healthy. And if there is ever an issue with client acquisition down the road, you will have the data you need to make an informed decision.