Implementing a Metrics-Driven Approach to Law Firm Client Acquisition Operations

In our previous blog, we introduced the concept of a RevOps-based function to innovate client acquisition and retention processes within law firms. A big change for companies transitioning to a RevOps structure is that metrics across the funnel are standardized and owned by one team – no longer are business executives concerned with measuring hand-off ratios between MQL (Marketing Qualified Leads) and SQL (Sales Qualified Leads) and Wins.

In our experience working with law firms though, our observation is the complete lack of metrics related to customer acquisition and retention processes and, often there’s no measure of ROI on marketing spend. In a 2017 survey conducted by leading legal technology company Clio, 94% firms reported not knowing their customer acquisition costs.

So the opportunity for law firms in setting up a RevOps function is to start afresh and address basic business principles – what should be measured and how?

A set of first principle questions that this then leads to for each firm:

  • Would they like to acquire new customers?
  • Or rather, is customer retention the problem?
  • Or is there trouble maximizing the value of each existing customer?

Two key metrics used to address and assess these questions are CAC (Customer Acquisition Costs) and CLV/LTV (Customer Lifetime Value):

Customer Acquisition Costs (CAC)

CAC = Total money spent on sales and marketing activities / Total “new” customers acquired in the same period

While CAC is considered a critical metric for technology and innovation companies, there are some complications for law firms (and this challenge would apply more broadly to most professional services firms) in measuring this metric, which begs the question as to whether this is even the appropriate metric:

  • Numerator: Most firms don’t have a unified view on sales and marketing spend with these dollars being spread across multiple silos
  • Denominator: There is lack of consistency around what defines ‘a new customer’ – is it a net new client or also a new matter from an existing client? Is it total billings from a client or year over year incremental revenues?

Customer Lifetime Value (CLV)
CLV = Average value of a client relationship for a period X Average lifespan of customers (i.e. 1/Churn)

The Client Lifetime Value (CLV) metric is one that we see most firms and lawyers as having a more instinctive sense of and is typically the basis for key account programs in the industry. However, it also has some challenges in being measured consistently. Few firms have a per client view of their client acquisition/retention costs and many lawyers would contend that assessing CLV is not possible given the transactional nature of many relationships.

We would suggest that by analyzing 3 to 5 years of data, firms can arrive at some combination of CAC and CLV to be the basis of their benchmark metric. An industry benchmark in this regard for CLV:CAC ratio is 3:1 (i.e. the value of a customer over the lifetime should be three times the cost of acquiring them or more. If it is much lower than 3, you should consider reducing your CAC or looking at more profitable customers. Similarly, if it is much higher than 3, you should consider investing more and driving account growth for this client.

Other metrics to consider for your RevOps team to monitor would be:

  1. Profitability: Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV or LTV)
  2. Customer Experience: Net Promoter Score (NPS)
  3. Marketing and Sales Pipeline Velocity
    a. Number of leads
    b. Average deal value
    c. Win/Loss rate
    d. Length of the sales cycle

For many firms, data is intimidating and immediately following their interest in measuring metrics, management committees are presented with a multi-million dollar CRM implementation proposition which would be a non-starter in recessionary times.

This is a new topic in the sector and as we strive to build appropriate metrics into our platform, we would love to hear from our industry peers on this topic:

  • Do you think measuring ROI on marketing spend is something that law firms need to do better on?
  • What metrics have you seen being measured – are CAC and CLV the correct measures for firms to track?
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