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Do you know your (ideal) clients?

by Joe Kaczrowski | Apr 02, 2015

Raindrops on roses and whiskers on kittens. Marketing and math are often not two of a lawyer's favorite things. However both can help you identify your ideal client and increase your profitability and job satisfaction.

Clio recently posted an article summarizing a number of simple metrics that can help you evaluate your book of business and create your ideal client profile. These metrics include Contribution Margin, Net Promoter Score, and Client Acquisition Cost.

What is a 'metric' exactly? Basically it's a way to objectively measure performance. To complicate matters, there's also the buzz word 'analytics'.  What's the difference? To many, not much, as they are often used interchangeably.  However, and without getting bogged down in the details too much, basically metrics are generally considered 'informational' while analytics are 'strategic'.

Anyway, you may have a lot of clients, but are they quality clients or are they keeping you just busy enough so you can't find your ideal clients? To find out, consider the three metrics mentioned by Clio:

Contribution Margin

Contribution margin is basically just revenue per unit. In the law practice context, this means what is your net profit (hopefully) per client.  Essentially for each client you weigh the total revenue (billable hours X rate, for example) against the total costs for each client. Costs are further broken down into fixed and variable costs. Variable costs are directly proportional to the hours billed, so support staff for example.  Fixed costs are your overhead costs, like office space and equipment.  You also may have some direct costs with specific clients, although these may be pass-through costs billed to the client for a net of zero (filing fees, etc.).

Net Promoter Score

Net promoter score is a way to quantify client satisfaction and frame it in terms of future business. Basically you include a single question in your exit interview: how likely he or she would be to refer you to someone else on a 10-point scale. You can figure out your own breakpoints, but Clio suggests any 0-6 ratings are "detractors" that will provide negative word-of-mouth and hurt your brand, 7-8 are "passives" that won't hurt you but won't help you either, and 9-10 are "promoters" that offer the greatest opportunity for future business.

Client Acquisition Cost

Client acquisition cost could also be thought of as doing a cost-benefit analysis on each client. With this metric you compare the cost of getting clients through a certain channel against the revenue generated by those clients. The first step, and perhaps the hardest step for many attorneys, is determining how the client found you. The most frustrating answer an attorney may get from a client to the question 'how did you find me?' is "the Internet."

Tracking your leads may require you to spend some time familiarizing yourself with tracking codes and Google Analytics (which runs a close second to the NSA in terms of what data is recorded about individuals and their behaviors). Using the client acquisition costs metric helps you answer the question about whether $20,000 is better spent on Google AdWords or radio spots or bus ads.

Clio's offers a simple example. An attorney runs a Twitter ad campaign for $20,000 that leads to four clients. The acquisition cost is therefore $5,000 per client. The attorney determines the total revenue for these four clients is $30,800, or $7,700 each. Weighed against the acquisition cost, the contribution margin for these Twitter clients is $2,700. The attorney may also spend $200 on a newspaper ad that leads to one client. However, if that client represents $4,000 in revenue then the contribution margin for the newspaper ad is $1,100 higher than the Twitter ad campaign. (There's that math you were promised in the intro!)

Regardless of the method(s) employed, your law practice will benefit from additional analysis of your clients. You also may find greater satisfaction with your job as well. Using some of these metrics can help you quantify the benefit of 'problem' clients; are they really worth the trouble? People may say you can't put a price on your happiness (or mental health), but maybe you can.

A few additional resources and reminders that may be of interest:
  • Clio offers a free webinar on Metrics and the Modern Firm if you want more information.
  • Want help with your firm marketing? The MSBA will be starting a second marketing cohort in a couple weeks running from mid-April through July. Remote participation is available. More information here.
  • Check out the next installment of the ABA's Free Career Advice Series, Making Rain to Grow Your Business ("Whether you have a solo practice or work in a firm, business development is no longer an optional skill. In this month's Free Career Advice Series, learn proven practical techniques from experts").
  • HCBA also has a free Nuts & Bolts for New Lawyers all day CLE event in a couple weeks that includes a session on Building a Book of Clients ("As a new attorney generating referrals and retaining satisfied clients can make or break you, whether you are an associate attorney or solo practitioner. Hear tips and strategies for cultivating and keeping happy and returning clients.")
  • Also check out the MSBA's Practice Resource Center for helpful articles from our partners. The Practice Resource Center features over a dozen articles from the ABA on technology and security issues.
  • And a final reminder that online registration for ABA TECHSHOW ends tomorrow, April 3. MSBA members are entitled to a discount by using promo code TECHSHOWEP15. Attend some sessions on topics ranging from marketing to security to practice management, or spend some time on the floor with your colleagues and vendors like Clio and HotDocs.