Referral Clients Are Simply Cheaper To Obtain, Easier To Close, Pay Better, And Are More Profitable

Oh, that is a mouthful, but it is true.

I read this recently about business in general and I think from my experience it applies to law clients as well.  A referral has a 60% chance of becoming a sale, with other methods coming in a distant 10% or less.  It is actually a lot less.

Does this mean that an attorney is not closing 90% of the clients that go through his office based upon advertising, let us say?

No.  But, what it does say, and what we know is true, is that 60% of those people referred to you by a reliable source are likely to make their way through your entire system, from calling, to booking an appointment, to actually showing up at your office, going through the legal options available with you, agreeing to retain you and actually paying you money.  With TV advertising primarily, but all advertising and other marketing in general, the percentage of those that respond to your spot in the same way is probably less than 1% over all.  We know, for example, that targeted direct mail probably has no better than a 2% response rate, and then many potential clients that do respond fall out somewhere along the process so that the attorney makes no money on these these prospects.

Now, it is true that a TV market is much larger than a referral base and that 1% if convinced through repetitive and saturation levels involved in a TV rotation will yield many more clients, but at what costs?  The advertising is extremely expensive if done effectively.  The added inquiries, even from the many that do not set an appointment, or do but do not show up, or do show up but do not retain, add many more staff hours even in comparison to the amount of business or number of clients retained.  It was not unusual, for example, for my old consumer bankruptcy firm to spend (consciously so) 20% of every dollar made on marketing costs.  This did not include all of the other overhead.  After all, staff costs money, and they require a lot more office space, computer and phone systems, health and other benefits.  The list is really endless.

Also, there is the issue of a qualified prospect.  I think it is no secret that advertised for clients come with a lot of healthy skepticism with which an attorney and the attorney's staff must deal.  You have to generally work harder to convert this potential into a client.  Referrals generally come pre-qualified, or better so, with less resistance to the fees involved, and mainly ready to retain you as their attorney.  After all, somebody else has already pre-sold you and your services as an attorney, and probably explained the issues to the prospect before they booked an appointment.

And, what did this cost?

Hardly anything.

So, you compare.  What type of practice to you want?  A large advertised practice, or a smaller practice, with less overhead, based on a steady set of referrals?

I know which one I prefer.

Comments

[Peter Olson]

I think I wholeheartedly agree Chuck. Former clients and other professionals are where the new business comes from...figure out how to make those groups happy. Though I see the tv ads and the billboards for the PI and bankruptcy people.