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Using Referral Fees to See How Your Legal Marketing ROI Stacks Up

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By now, most lawyers understand that they need to diligently track both the costs of marketing and the corresponding benefits. This allows for a proper calculation of client acquisitions cost (CAC) and return on investment (legal marketing ROI). Have you ever wondered what’s a good ROI for lawyers? Whether you’re spending too much, or too little, on marketing?

Calculating your CAC and ROI is just a start. These numbers are meaningless without context: Is a client acquisition cost of $5,000 too high? Is an ROI of 250% good?

Benchmark Legal Marketing ROI

One way to benchmark your performance is to compare your marketing costs to what you’d pay in referral fees for the same type of matter. This works because a referral fee is best conceptualized as a marketing cost: it’s an expense incurred for the purpose of retaining a client.

The key difference is that a referral fee is 1) payable only after a successful engagement (i.e. fees earned) and 2) varies is amount proportionally to the fee earned.

Let’s take a personal injury case as an example. In Southern California, the customary attorney referral fee for a personal injury case will be in the ballpark of 25%. If the total fee earned is $40,000, then the handling attorney would pay the referring attorney a referral fee of $10,000.

Client acquisition cost is straightforward. The only expense incurred to retain this client was the referral fee. So, the client acquisition cost is $10,000.

Return on investment isn’t much more complicated.

ROI = (total fees) / (client acquisition costs) = ($40,000) / ($10,000) = 400%. Thus, the legal marketing ROI here is 400%

The table below compares ROI to referral fee percentages. As you can see, the ROI for lawyers on referral fees ranges from 400% to 1000%.

Referral Fee % 10% 15% 20% 25%
ROI 1000% 667% 500% 400%

So, What’s a Good ROI for Lawyers?

Now remember, we’re talking about referral fees that are payable only after a successful engagement. Any analysis of marketing ROI for lawyers needs to take this into account.

For regular marketing expenses, there’s no guarantee that fees will be earned, or even that clients will be engaged. That means the attorney is bearing risk. We’ll want to be compensated for that risk. So ROI for regular marketing expenses should exceed the ROI for referral fees.

By how much? Depends on how risky the marketing expenses are. If you’re running a campaign that has been both predictable and successful, then a marketing expense ROI in the same ballpark as the referral fee ROI is probably acceptable. But, if you’re running a brand new campaign, I’d want to see a marketing expense ROI of double or triple the corresponding referral fee ROI for the same type of matter. If you’re not, it’s likely best to pull the plug on the campaign.

Attorney Referral Fees in California: What Percentage?

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One pleasant aspect of practicing law in California is that attorney referral fees are ethically permissible. To be clear, what I’m talking about are naked referral fees, where you simply refer a case to another lawyer without taking any responsibility for the matter. Many states require the referring attorney to assume some responsibility before fee sharing is ethically permitted. In California, all you need to do is comply with Rule 2-200. Keep reading to learn what a typical attorney referral fee percentage is in California.

Ethical concerns aside, what is a typical amount for an attorney referral fee in California? I had this question when I first began practicing and spent a fair amount of time asking around and researching the issue. Here’s my take:

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What is a Typical Attorney Referral Fee Percentage?

The range for attorney referral fees in California is between 10% and 50% of the total fee earned. For routine contingency fee cases (i.e. those with a viable defendant, solid damages, and reasonable prospects for proving liability), a typical referral fee would be 20% to 25% of the fee earned. Cases with uncertain prospects, lower value, or those requiring significant legal work would come in on the lower end of the spectrum.

I’ve come across, both online and in person, the “third of a third” or “40% of 40%” model, where the attorney referral fee percentage matches the contingency fee percentage. In my discussions with experienced practitioners (admittedly a very small sampling), this doesn’t appear that prevalent. [Update: Seems like I may be wrong on that point.]

The high end, up to 50%, appears to be reserved for special conditions. Here’s a case from Illinois where a workers’ compensation firm had an agreement with a personal injury firm for a 50% referral fee. Presumably the personal injury firm was willing to pay a premium referral fee on routine cases in the hopes that the workers’ compensation attorney would send along enough high-value cases to make the arrangement a profitable one. Another 50% referral fee case – this one from New Jersey – had the happy combination of high value, high visibility, and straightforward liability. While these cases aren’t from California, I suspect that you could probably negotiate a similar agreement here if the conditions were right.

I’ll wrap up by noting that you should always refer your clients out to the most competent attorney for the case, not the one willing to pay the highest referral fee. It’s the right thing to do.



Billboard Marketing for Lawyers: Does it Work?

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We’ve all seen billboards alongside the highway advertising for lawyers or law firms. Some are sketchier than others. Whether they’re effective in attracting prospective clients back to the advertiser is unclear. A few years back, Gyi Tsakalakis writing on Lawyerist highlighted the issue of tracking billboard marketing. His point was that without tracking client-leads back to a particular marketing medium, you can’t evaluate whether your marketing campaign was successful.

He went on to question whether billboard advertising is an effective way to attract clients.

Does Billboard Marketing Work?

Well, I have an answer. Or at least a tentative one.

I’ve been running a traditional media advertising campaign for the last five weeks or so and have tracking set up. The campaign is fairly modest in scope, so I’m not going to draw any hard conclusions. But the initial data is promising.

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