Word-of-Mouth Revenue and the Value of a Client

Toothpaste marketers have it easy.

It’s not hard for them to figure out the value of a client… or in their case, of a customer. They know the margin they make on the product, how many tubes that customer will buy and how often that customer will come back to buy it. Moreover, the word-of-mouth phenomenon is not prevalent. After all, how often do you give or receive referrals on which toothpaste to buy?

But what about the marketer of legal services?

For most practice areas, there is no “typical” client. And there is absolutely no way of knowing or even estimating how many times that client will come back for more services. But most important, the value of a client is determined not just by the revenue that client brings in, but also by the revenue that client generates through word-of-mouth and referrals. Unfortunately, most law firms fail to track that information and thus fail to get a full understanding of what each client represents to the firm.

This lack of information can have a direct impact on the firm’s fortunes. For example, a client that brings in greater revenue may be “appreciated” more than the smaller client whose contribution to overall firm revenue is significantly less. Yet, that smaller client may be of greater value to the firm simply through its connections to other potential sources (i.e. prospects) of new revenue.

When data regardingfrom where referrals are coming is not collected, law firms miss the opportunity to not only understand the value of each client, but also the opportunity to nurture those sources of “down the road” revenue. They may not see that that client who used to send lots of business their way is no longer doing so, and thus they may not recognize that his or her perception as to the quality of their services is no longer what it was. They may not see that Mrs. Smith merits a lunch invitation, Mr. Jones has earned a larger gift basket come the holidays, or that the XYZ Company is in danger of becoming an ex-client.

To be able to act on this information, law firms must first be able to capture it. Yet this need not be a daunting task, By simply asking the question (as one would regarding through what medium a client heard about the firm), and tracking the revenue generated through these sources, a great deal of actionable data is obtained.

You can find more information regarding the tracking of word-of-mouth revenue and the value of a client at etiometrix.com.

In the meantime, I look forward to the day your firm’s success in business development can be quantifiably tracked to perceptions of its work quality. 

Changing the Way Law Firms Measure Return on Marketing Investment

Every time a business person decides to run an ad, develop a web site, launch a social media initiative, take prospects out to lunch or start a public relations campaign, the obvious question that hangs implicitly over his or her head is, “How do I know this will work?”

This is especially true for the more than 47,000 law firms and 1.2 million attorneys whose access to hard data is virtually non-existent; where supermarket scanners serve no purpose and there are no audit or rating resources (e.g., Nielsen) that can provide management with answers to very complex questions. 

Searching for the answers to these very same questions in regard to their own respective businesses, entrepreneurs Les Altenberg and Tom Mazanec developed a methodology they call Etiometrix. According to the two, the Etiometix approach crunches lead generation and sales data in a manner that’s never been done before, offering legal marketers the opportunity to assess their marketing and business development activities at the organizational, practice group and even individual attorney level. The result is a service that allows marketers to know:

• Which activities offer the best returns-on-investment 
• Who among the firm’s attorneys is best –suited for business development and through which types of activities
• Which practice areas should be supported and to what degree
• The role that “word-of-mouth” is playing in the growth of the business
• How well the business is perceived by the firm’s clients
• The degree to which marketing (e.g., advertising, online, PR) vs. personal networking is working for the firm.

Their proprietary program can quantitatively track the effects of previously immeasurable dynamics such as branding initiatives and the role “softer” marketing tools (e.g.,  brochures, web sites) play in generating business.

According to Altenberg, who currently heads A.L.T. Legal Professionals Marketing Group, a marketing consulting agency based in Marlton, NJ, “The program traces how individuals became customers of a particular business. In most cases, it is because of exposure to several types of individuals (e.g., professionals, referral sources) media, and/or online interactions. Furthermore, the resulting reports forego so many of the interim metrics that we hear so much about these days. Its great that we can know how many people read an ad, attend a seminar, visit or click through to a web site, but those numbers do not really mean anything unless they are tied to the revenue they bring in.”

Altenberg continues, “We were always making marketing recommendations to our clients who then inevitably ask, ‘How will we know if this is working?’ Until now, we never had a good quantifiable means for addressing that question.  Now we do.”

More information on Etiometrix can be obtained by visiting etiometrix.com , emailing jarlene@etiometrix.com or calling 856-810-2127.

Measuring Return on Legal Marketing Investment: The Implications of Tracking the History of Client Origin

Over the past several weeks, we have outlined what we feel to be a more holistic and thereby more accurate methodology for tracking the results of law firm marketing. At first blush, employment of the History of Client Origin methodology described in these postings might appear to be just another way of calculating, analyzing, predicting return on investment, and ultimately for making decisions pertaining to the marketing activities of the firm.

But this would not be true.

The data gained through the utilization of an approach that tracks client origin is both vast and rich in detail. Among the information to be gleaned are answers to questions such as:

Which marketing tools offer the greatest potential for short-term ROI? For long-term ROI?

Because the History of Client Origin Methodology can be traced over any period of time, firm decision makers can easily ascertain which activities are most likely to pay out over the short or the long haul.

What is the relative cost vs. benefit in having specific attorneys spend time on client work vs. on business development efforts?

Let’s face it. Some attorneys are better at drumming up new business and others are better at lawyering. This can be analyzed by taking the History of Client Origin model and applying it at the attorney level. This involves tracking the touchpoints to which the individual attorney allocated his or her time. The hours spent is then multiplied by the attorney’s rate of compensation to arrive at ROI and Aggregate ROI figures for his or her efforts. These numbers can then be compared to the revenue that might have been earned had the attorney spent this time on billable work. By doing so, it is easy to ascertain whether an individual attorney’s time is better spent on originating work versus on generating more billable hours.

Which practice areas offer the best potential for short or long term revenue growth?

As with individual attorneys, this requires applying the history of client origin methodology to the practice group level. From this analysis, marketing decision makers can determine to which practice groups firm resources are best allocated. 

Should business development resources be spent on hard marketing costs (e.g., advertising) or on personalized prospecting/networking?

The History of client origin model provides a straight-forward methodology for comparing the ROI of the interpersonal efforts of firm attorneys (e.g. networking, prospecting, entertaining) to other touchpoints such as the firm website, advertising, collateral materials, PR, on-line media, etc.

Should marketing resources be spent on very direct marketing activities (e.g., direct mail, seminars, pay-per-click, etc.,) versus on “softer” image-oriented ones such as the firm’s web site, image advertising, brochures, etc?

Unlike other ROI methodologies, the history of client origin paradigm levels the playing field in terms of allowing marketing decision-makers to ascertain the relative contribution of these two different “types” of touchpoints. And it can do so, without the need for implementing testing scenarios.

What is the short and/or long term value of a specific client? What kind of exponential potential do they offer?

ROI and Aggregate ROI analyses can be run against different client segments as based upon revenue, industry, etc.

To what degree is word-of-mouth marketing working for the firm?

By considering “referrals” to be touchpoints, we can ascertain the percentage of revenue attributed to word-of-mouth versus revenue generated through other means. Because referrals are an indication of client satisfaction, it can be inferred that the greater the percentage of revenue attributed to referrals, the greater is the perceived quality of legal services that the firm is providing. This can have further implications as the greater the level of referral revenue, the less there is a need to invest firm dollars into traditional marketing channels. Of course, the converse of this is true as well.

Yet, despite the value in tracking client origin, to do so by hand would be inefficient at best and impossible at worst.  Instead, the process must be automated, with reports and analyses available instantaneously.  Next week, we will wrap up this series with some thoughts on how The History of Client Origin methodology can be applied… Yes, there’s an app. for that!

Next Week: The Practical Application of “The History of Client Origin.”

Measuring Return on Legal Marketing Investment: Why Law Firms Don’t Get Useable Information

If there is a single sentiment that we have heard most often in over 20 years as legal marketing consultants, it has been expressed by the question, “How do I know if this marketing effort will work?” The laments,  “We tried that and it didn’t work,” and “Most of our business comes through word-of-mouth,” would be right up there as well.

As we begin a new year, I thought it would be a good idea to explore how legal marketers can get a better handle on what strategies and marketing vehicles pay out and which are less profitable.  By accurately measuring the effects of their marketing efforts, law firms will be better equipped to develop meaningful and growth-oriented business development initiatives.

I encourage everyone to lend their voice to this discussion as determining the effectiveness of legal marketing is imperative for practice growth.  Unfortunately, it is a topic that is either often misunderstood or ignored altogether.

Why Measuring Return on Marketing Investment is Difficult

To understand where legal marketers miss the boat on measuring return on marketing investment, it is important to get a handle on why measuring such return is so difficult to begin with.

First, unlike marketers of consumer products, legal marketers do not have a wealth of measurement tools at their disposal.

Second, the large disparity in the number of clients/customers of a particular product versus those of a law firm makes traditional analysis of return-on-investment much less accurate for this latter type of enterprise.

Third, word-of-mouth referrals play a much larger role in how someone finds a lawyer, a doctor or a financial planner then in how they determine what brand of cereal to buy.

Fourth, some activities have traditionally not been easily measured. Creating a brochure, developing a new web site, writing an article for a trade publication may not actually make the phones ring, yet we know instinctively that they play a part in the overall growth of the firm.  We just don’t know how big a part.

Fifth, in legal marketing, attorney “time” is a major marketing cost element. Very few methodologies capture this significant business development expense.

Finally, and perhaps the most important reason why measuring the return on a law firm’s marketing investment is so difficult lies, as we shall see, in some faulty premises on the part of legal marketers themselves.

Next week we’ll take a look at some of these faulty premises -- mistakes law firms make that prevent them from getting a true picture of their business development initiatives.

And after that, in the weeks ahead, we will outline how law firms can get a much better handle on knowing from exactly where their business stems and how they can use this data to make informed decisions about future growth programs.

Next Week:

Measuring Marketing ROI: The 3 Mistakes Law Firms Make