Business Strategy, Digital Marketing, Metrics

By Postali

blurry clock in the background with a stack of coins in focus in the front

In our previous article on Cost Per Client Acquisition, we discussed how to figure out how much it costs your law firm to find each new client. In this article, we’ll look at the other side of the coin – how to figure out the value that each client brings your law firm. By using these two pieces of information together, you can start developing a better picture of what marketing channels are the most effective uses of your resources. If you find that your law firm is spending $1000 on direct mail to reach a client that earns your firm $25,000 and $1000 on sponsored Twitter posts to reach a client who earns your firm $500 you may want to put more resources into direct mail. No law firm is the same, so your firm’s results for each marketing channel may vary based on your target market and goals and tracking how these interact with each other helps you maximize your marketing efforts.

Once you know the value each client contributes to your law firm, you can:

  • Determine which marketing channels are the best investments
  • Identify new clients and markets to target
  • Adjust your law firm’s pricing

How much profit is each client really bringing in?

For each client your law firm takes on, you have costs attributable to managing that client’s case. These costs may include overhead expenses, direct expenses for the case, and professional expenses. To determine how much each client is really making in profit for your law firm you need to subtract these from the final amount you receive from the client. This is the profit you make from that client.

simplified client value equation

What happens if a client costs more than they’re bringing in?

If this happens only occasionally, it might be an anomaly. Sometimes, cases we think are going to be straightforward turn out to be more complicated than we realized. But if you start seeing a trend in the type of cases that have a negative client value, you might want to reconsider taking on these types of cases or even adjusting your pricing strategy to account for this. Having already done the calculations, you’ll be able to see just how much your pricing would have to shift to be able to reasonably accommodate these types of cases.

Tracking this information is also helpful to know when bringing on cost neutral or slightly cost negative clients can be useful. For example, if you’re a growing firm, calculating manpower and capacity, you may have times when an associate has excess capacity. In those situations, any revenue generating activity could make sense, even if the calculation above turns out negative.

What client value means to your law firm

When combined with Cost Per Client Acquisition data, Client Value is beneficial in identifying which marketing channels are most profitable for your law firm. This allows you to direct your resources where you are going to get the most return and reevaluate if you want to continue putting resources into marketing channels where the return isn’t as great. Since this can change over time, tracking this metric allows your law firm to make timely pivots in order to make the most of whichever marketing tactic is currently the most profitable.

client value spreadsheet example

We’ve created this free downloadable workbook to help you get started tracking your marketing metrics and seeing the effects of your marketing efforts. And if you need help figuring out your next steps, we’re always here.

Note: This is the 1st article in a 4-part series. Want to read the rest?