In the last two articles, we explored some of the metrics important for attorneys to measure success using key performance indicators. Cost of customer acquisition and lifetime customer value are two of the key performance indicators (KPIs) that were examined previously.
Our focus has first been on business development or marketing KPIs because the financial or firm operational KPIs have been covered extensively by other authors. However, now we are going to examine the overall return on investment (ROI) concept and discuss upselling, cross-selling, and referrals.
The concept of ROI is usually associated with the stock market or project world. If I invest $X on stock or spend the same amount for a project, I need to measure my return or revenue on the stock or project. Therefore, ROI is calculated as the revenue generated divided by the investment in the project, business unit, or entire firm. The higher the number, the better the investment.
ROI on Marketing Spend
First, a brief story about marketing and upselling in an unrelated industry to frame the discussion on marketing and business development:
Walking in L.A., I was handed a sample tube of hand cream and then asked to step inside a shop to have a “mini eye lift” for free in under a minute. Not sure whether to be intrigued or insulted, I had about five extra minutes, so in I went. I was put in a chair and the makeup that I had slapped on earlier was removed from under my right eye. I should have been suspicious then. Some cream was applied to the “fine lines” and “droopy, puffy” skin under just my right eye. I was buttered up with the whole “you have great skin” line and then told that I could have the rest of the treatment if I dropped over three hundred dollars on the treatment cream. I did not buy it and walked around with one eye feeling odd and naked without makeup for the remainder of the day.
The return for the company was zero because I did not purchase anything and there was no revenue generated. The investment by the company was the cost of the giveaway tube, the product used on my right eye, and the time paid to the person duping me into my “free” experience.
Applying That to The Law
Law firms are professional services businesses. Measuring the revenue is relatively simple and is equal to the billings associated with clients whose matters were as a result of an investment in a marketing campaign.
As discussed in prior articles, there is a cost to giving away time and services. The tube of hand cream was a product giveaway similar to that of an attorney providing free consultation and giving away work product in the form of an agreement or legal advice. Therefore the cost of marketing includes any direct advertising, sponsorship, software, or out-of-pocket expenses, plus all the time spent by staff and attorneys on the initiative. For some, including the time can make a material difference in ROI.
ROI is used to make sure you are using your scarce resources in the most efficient way possible. Of course, you might want to compare your ROI between marketing initiatives, year over year, and also research data on similar-sized firms that is available from larger companies such as LexisNexis.
3 Tips for Improving Your Firm’s Marketing ROI
Provide value even if free
Businesses and consumers are becoming self-educated prior to seeking legal advice. Attorneys have to be careful that any free consultation is not just a pure upsell and that the client is receiving something of value, as opposed to only addressing the fine lines and wrinkles of one eye. Cross-selling for other services and practice areas can help you spread the marketing costs (even if just for analysis purposes!).
Cross-sell as well as upsell
Providing a one-stop point (to a practical extent) for your practice or firm will be a timesaver for you and your potential client. Cross-selling for other services and practice areas can help you spread the marketing costs in addition to creating additional revenue. Also, upselling is easier and less expensive than acquiring new clients.
Referrals work both ways
Any cost of referrals to your firm must be included when calculating your total marketing investment (do not forget that those dollars also count in cost of customer acquisition). However, if you can generate clients for others that result in revenue, ensure you include it in the total revenue.
Measuring ROI at a program level, such as for your marketing, can help you decide between initiatives with hard data.
Next month, we will explore tactics for creating additional revenue by interviewing some legal practice business development experts. In short, we will look at some tips to create more sales (or matters), and therefore increase return on your dollars invested in marketing and business development.