Return on investment (ROI) tracking for law firms
I was with a client earlier this week and the topic of conversation turned to how they can track the effectiveness of some SEO and PPC that they were considering? The firm has a turnover of c. £12m with a marketing budget of 2.4% of turnover i.e. c. £290,000. Not too shabby (they could spend more of course). Marketing theory says to grow turnover by double digits every year you should spend between 5% - 8% of turnover.
Interestingly I pulled their accounts and in FY2014 their turnover was £11.6m rising to £12.1m in FY2017. Definitely NOT double-digit growth, not even cumulatively over the four years and definitely not year-on-year.
I call a marketing budget of 2.4% a ‘standing still’ marketing budget.
Interestingly, and I know that we are not a law firm. In those same four financial years, we increased our revenue by 49.6% in total, with an average compound growth rate of 14.4% per year. And in terms of marketing spend we spent an average of 4.4% of turnover on marketing each year.
So, I wonder what my client might have achieved in terms of growth had they spent the extra 2% i.e. another £240,000 on top of what they did spend?
Anyway, I digress. The conversation went something like this*.
Me: How much does it cost you to acquire a new client?
Client: Sorry, I don’t understand the question.
Me: You spend money on marketing right?
Me: And you take on new clients?
Me: So how much does it cost you to acquire a new client?
Client: No idea!
Me: OK, let’s go back to the beginning. I know your enquiry handling is not centralised is it?
Me: So who handles all the inbound enquiry form emails from the website?
Client: The central marketing team farm them out to the different legal teams.
Me: Great. And how do you track what they have done with them?
Client: Hmm, I’m not sure [Looks at a colleague who shakes their head]. I’ll have to get back to you on that.
Me: OK, sounds like it’s not really being tracked at all
[Client looks sheepish]
Me: Another question. How complete/accurate is your ‘source code’ tracking of new enquiries?
Client: Good enough.
Me: Do you run reports to check what volume of each of the source codes are being used?
[Client shakes their head]
And so it went on.
A fundamental piece of marketing is to know what it costs to acquire a new customer/client. Without this piece of information, how can you plan how much you need to spend on marketing in the order you meet your business growth targets?
You do have business growth targets, don’t you? Businesses cannot just stand still nowadays, you need to have an active growth plan, else someone else is going to grow past you (no jokes about Airbnb, Uber, etc.)
We have done a couple of pieces of work with clients to calculate their acquisition cost and have released the Excel model we used to do it, along with instructions on how to use it.
The model can be used to mash up case/revenue data with your marketing budget to calculate a ‘cost per matter’ from existing clients and for a new client.
* Confession. I have taken a bit of artistic license with the conversation to make my point.