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