Define Your Ideal Client With Metrics

How do you define your ideal client? One with a pulse? Law firm marketing has evolved to the point where firms are able to utilize the data and metrics they collect to identify the clients that offer the most to their firm both in terms of realized revenue, but also in broader terms of referral opportunity, lowered acquisition cost, and more. Here are the metrics you should be considering when building your ideal client profile (or persona):

Contribution Margin

Contribution margin is defined as the revenue per unit sold, less the variable costs per unit. In the context of a law firm, the ‘unit’ being sold refers to a billable hour of time; variable costs scale directly with the number of units being moved (ie the costs you pay your support staff, marketing costs). You’re then able to subtract fixed costs (office space, equipment, etc) to calculate your profits and profit margins. The benefit of measuring contribution margin, rather than Profits Per Partner, as a measure of a firm’s financial success, is that contribution margin can also be calculated at a practice area, matter, and client level—giving you visibility into the most profitable client type and practice areas, allowing you to narrow your client acquisition focus.

Net Promoter Score

The concept behind Net Promoter Score (NPS) is straightforward—essentially, how likely are your clients to recommend you to others in need of legal services? The beauty of NPS is its simplicity—it’s a single question that can be delivered to a client at the conclusion of a matter either via email or a simple conversation. Ask your clients how likely they would be, on a scale of 0-10, to refer you. Clients who rate a 0-6 are considered ‘detractors’—ie these are individuals who will provide negative word-of-mouth and damage your law firm brand. Clients who rank you a 7-8 are considered ‘passives’—they won’t provide a glowing recommendation, but they won’t steer clients away either. Your ‘promoters’ are those who answer 9-10. Promoters will help fuel law firm growth and refer the greatest number of clients to you. Again, ensure you’re tying NPS into your ideal client profile—while clients that actively promote your firm may not be the most profitable, the benefit they can provide in terms of word-of-mouth advertising can more than make up for it.

Client Acquisition Cost

Whenever determining your ideal client, the cost to acquire that client should definitely factor in. A high acquisition cost can eradicate your contribution margin, and knowing the lowest-cost channels for acquiring clients can significantly increase profit margin and allow you to optimize your marketing spend. A great way to gauge the effectiveness of your digital campaigns is by familiarizing yourself with UTM codes and tracking the campaigns in Google Analytics.

An example: let’s say a firm is acquiring clients via Twitter ad campaigns. A spend of $20,000 brings in four clients (for a CAC of $5,000). Between them, these clients generate $30,800 in collected revenue (or $7,700 in annual revenue per new client). The contribution margin for clients acquired via Twitter ad campaigns is $2,700. If this firm finds other client acquisition channels are bringing in clients with a greater contribution margin, they may want to shift ad spend from Twitter advertising to the more valuable channel; if clients acquired via social media outperform others acquired elsewhere, you can ensure that ‘Twitter user’ will appear in the persona data.

Wasting advertising dollars acquiring non-optimal clients (or worse, no clients at all) can severely erode firm profits and profit margins. By analyzing the data you should already have available, you’ll be able to identify the clients that provide the biggest benefit to your firm and acquire them in droves.

Looking to learn more about the metrics your law firm should be measuring? Watch an on-demand webinar on modern metrics for law firms featuring Clio’s own George Psiharis.

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