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. 

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