In any industry, clients will come and go. Depending on what kind of law your practice, you may have long-term relationships with them and work with them for many years. Alternatively, your clients may be dealing with temporary problems and be on their way once they’re resolved.
In either case, bringing in new clients is key to maintaining your firm’s revenue and growing as you move forward. While bringing in new clients is always a good goal, you also need to know how much it’s costing you to bring them in. Remember that revenue isn’t helping your firm if it’s not profitable revenue. We need to know that you’re making more profit from those new clients than you’re spending to attract them.
How to track it
In this category, we like to focus on a simple metric called Client Acquisition Cost. This is essentially how much you spend to acquire each new client. While it can be difficult to track exactly what brought in a new client, the measurement is actually pretty simple. You’ll take your sales and marketing spend for the period and divide it by the number of new clients acquired in that period.
Why it matters
As I mentioned earlier, you always want to be sure that your new clients are bringing in more profit than they’re costing you to acquire. If you’re spending more to bring in a client than you’re earning from them, you’re fighting a losing battle. This is especially true in areas where your clients are short-term and don’t have the repeated lifetime value of an ongoing client.
If you find that your acquisition cost is too high, you need to rethink your marketing approach. This is where we dig into the marketing spend more closely. If you’re using more than one marketing channel at once – like online ads and radio spots – you need to identify which clients are coming from which ads so you can focus your budget on the channel with the best returns.
Since marketing spend from one month may result in new clients in a future month, we’re really looking for a trend in acquisition cost over several months or even a year. Once you know that your average new client is being acquired profitably, you can turn up your marketing efforts to grow and scale your firm.
If you’d like someone to walk you through the tracking process and analyzing the value of your marketing, we’d love to help.