Last week, I was in Connecticut, visiting a law firm that asked me to help them increase their bottom line. This is a top-rated law firm that closes cases with six-figure fees.
On the surface, it looked like this firm was on top of its game; but, there was a reason they asked for my help. Despite their cases and fees, they weren’t making enough money.
This firm had relied on referrals from other law firms as their primary source of cases. So, despite those six-figure fees, they were paying one-third of their revenues to the referring law practices.
Return On Investment
The math is pretty simple. On a $100,000 fee, $33,333 is paid to the law firm that referred the case. The remaining $66,667 is kept by the law firm that handled the case. For every dollar they spent to get the case, they get two dollars back, or you could say, the return on investment (ROI) is 2-1.
That’s a very poor ROI or, to put it another way, that’s a very high price to pay for a case.
I know that lawyers should be aiming for anywhere between six and 10 times the return on their investment, not two. I say that because I know law firms that are seeing a 10-1 return on their investment in targeted marketing.
Maximizing Law Firm Profit
Imagine that was your law firm and you have the spare capacity to take on just one new case. Your choice is between two virtually identical potential clients: one is a referral from another firm, the other is from an online ad that costs you $100 per click. Which case would you take on?
I would obviously take the case from the online ad, because it only cost me $100, but with the other case I would have to pay one-third of my fee to the referring lawyer. That could be tens of thousands of dollars I would have to pay in referral fees versus $100 for the ad click.
Lowering Cost Per Case
Of course, not every online ad-click generates a case. It’s a “numbers game” where you have to know your conversion rate – for every so many clicks at X dollars per click, you’ll generate a new case.
With campaign and landing page optimization, you can lower your cost per case over time as you reduce your cost-per-click and increase your conversions.
But, unless you’re getting your online campaign wrong, a case generated online should never cost you one-third of your fee. More like a few hundred bucks.
When you can pay far less to get a new case, why would you still only take cases that cost you one-third of your fee?
Diversify Lead Sources
This law firm had only one source of clients and that was their mistake. By testing multiple tactics for getting new cases, they could have found several that would generate a lower cost per case than a one-third referral fee.
It makes sense for law firms to diversify their sources for new cases, not only to find a better return on investment, but also to insulate themselves from potential disaster.
As your grandmother probably told you, never put all your eggs in one basket. If you only have one source of leads and cases, what happens if that source suddenly dries up?
Having multiple lead sources is a common-sense insurance policy if a steady stream of new cases is important to your law firm.
Getting Online Campaigns Wrong
So, how do you get an online campaign wrong? Well, I’ve seen that recently also, in working with another law firm.
They have the same return on investment as the first firm, $2 back for every dollar they spend, but they’re getting those results with online ads.
This firm spent $40,000 on online ads, to generate $120,000 in case fees.
That’s a 2-1 return on investment. They were getting the same ROI from online ads as the other firm paying one-third referral fees. That’s a terrible financial return from an online campaign.
I had to understand why it was performing so badly, and here’s what I found:
- While the firm would receive the lead information immediately when submitted, they waited two to three hours before calling the lead back.
- The firm did not follow up with the lead after the initial call back.
- The firm would wait two weeks to sign up the lead.
While they weren’t doing everything they could to follow up with their leads and turn them into clients, no doubt somebody else was!
This experience proved to me that the importance I place on consistent follow-up with leads is well-founded. I could see what happens when there is zero follow-up.
Importance of Follow-Up
While this firm was doing nothing to guide these leads toward signing up with them, just think what those potential clients were receiving from other law firms.
If you’ve been in a wreck and you’re looking for a lawyer, are you going to wait two weeks for a follow-up in this day and age? People are doing research online, educating themselves on the law and their rights and comparing what each law firm has to offer them as well as reading online reviews.
So while the firm did nothing, you can be sure that some of their potential clients went out looking for information and assistance, and that some of those people ended up hiring a different law firm.
Some of the people who didn’t hire this firm will have instead hired a law firm that did follow up with them and consistently communicate all the way through.
There was no “instant messaging” when I started practicing law. Now, it’s where we are. For Millennials, two weeks of “nothing” is a long time to wait.
Education Isn’t Harassment
I built two law practices on the back of education-based marketing and follow-up. When you’re educating people, it isn’t harassment. Education is welcomed by potential clients. That’s why I have produced so many books, free reports and educational videos for my law firms.
We started to engage with potential clients by NOT asking “Do you need a lawyer?” Instead, we would ask “Would you like this free information?”
We followed up by continuing to provide more information, and hope that we’ve done everything to help these leads understand why we are their No. 1 choice for legal representation.
I’ve run TV commercials and infomercials, offering information and NOT legal services, that have generated some of my biggest returns on investment.
Before you get to the educational drip campaign, you’ve got the immediate lead follow-up and that’s also where this second firm was getting it wrong. By waiting two to three hours to call back their leads, they were missing out on a golden opportunity to be the first with a solution. While the firm was not calling back the lead, what do you think the lead was doing? Remember, Millennials want instant, not wait for two weeks.
The lead had obviously been looking to solve a legal problem, found the firm’s webpage and filled in a form. Do you think they went straight back to work? Or, do you think they continued their online search for help?
The law firm wasted those two to three golden hours by not immediately following up with their leads.
Then they didn’t follow up after that, and waited around before signing up the client.
That is how you spend $40,000 on online leads and only generate a 2-1 return on your investment: by totally abandoning the follow-up.
Before You Buy The Latest Shiny Thing…
Before you rush out to buy the latest bright, shiny thing that’s being touted as the ‘magic bullet’ to getting new cases, have a fresh look at what you’re already doing.
Are you paying too much for each new case? Do you even know how much you’re paying for each new case?
If you don’t know those numbers, I would urge to work them out before you invest a single dollar in more marketing.
You should first figure out your cost-per-lead from each lead source. Then, work out your conversion rate and cost-per-case.
Then, you should look at whether you’re putting enough effort into follow-up and increasing your conversion rate.
If you already know that you don’t have any follow-up, I hate to break it to you, but you’re flushing your money down the toilet.
Lesson For Every Law Firm
My recent experience with these two firms should stand as a lesson for every law firm owner: Don’t be fooled by big-number case fees. If you own a law practice you should know how much you’re actually paying for each case. Only then can you figure out how to increase your profitability by finding a source of cases with a lower cost. That one step will put you on the road to increasing your return on investment.