Law firms often focus solely on billable fees; not many spend time calculating the effect of lost leads on their bottom line. Even one lost lead can produce dramatic effects on a firm’s profit margin.
This blog will help law firms identify the magnitude of their lead losses and determine the true value of not only the opportunities lost but the operating costs related to them.
With this information, firms can determine how to minimize the damage due to lost leads so they don’t turn profit margins into a loss. Ultimately, the key to minimizing lead loss is optimizing the intake process.
How to Benchmark Lead Loss
Lead loss means that, for various reasons, the firm failed to connect or secure the deal with a lead. Maybe the lead called after hours, and the firm’s intake process does not include 24/7/365 service. Or, maybe the firm’s intake staff is not bilingual, so it cannot communicate properly with a segment of potential clients. In either case, potential clients take their business elsewhere.
The industry standard for lead loss in the law firm setting is 8%, meaning that of 100 leads, the typical firm will lose eight potential leads. If the average fee for the firm’s clients is $10,000, losing eight leads means a loss of $80,000. Instead of ignoring lead loss as merely a consequence of doing business, firms would benefit immensely from determining the value of their lost leads. As it turns out, there’s a formula for that.
How to Estimate Opportunity/Operating Costs
The firms that attempt to determine the value of lost leads usually consider value based on lost opportunities, or what businesses call opportunity costs.
Opportunity cost specifically refers to the return on an option not taken minus the return on the option chosen. Concerning the value of lead losses, opportunity cost means the expected return from the lost leads minus the return on the leads that resulted in new business. Since opportunity costs are not tangible like unsold inventory, firms often do not take them into account when making business decisions. That is a mistake.
Opportunity cost is just one part of an equation that helps determine the economic value of lost leads. The second part of the equation is the collective operating costs associated with pursuing potential new clients, including marketing expenses.
In the law firm milieu, the term “marketing expenses” refers to the costs the law firm sustains to bring its services to the attention of potential new clients. Consequently, marketing expenses often include promotional fees, online advertising, recruitment agency fees, participating in social media and sponsoring events. Marketing dollars that the firm spent on a lost lead are considered part of the operating cost.
Operating costs also include administrative expenses. Administrative expenses are the costs of doing business with respect to managing the firm and processing information. Administrative expenses relate to office supplies, communications, senior management salaries and information technology (IT) expenses.
Operating costs related to lost leads have a broader impact as well. They decrease the firm’s return on investment (ROI), and they decrease the firm’s return on ad spend (ROAS).
Calculating Lead Value with Operational Costs
In our previous example, the loss of one lead cost the firm $10,000 in opportunity lost; however, the full value of the lead loss is the loss of potential revenue from the lead plus operating costs. A firm that pours significant amounts of money into generating leads can accumulate operating costs that are equal to or greater than its opportunity costs.
This means that gaining control of lead loss may result in significant improvement in the firm’s profit/loss statement. For instance, cutting lead loss in half—from the law firm industry standard of 8% to 4%—means the firm only loses $40,000 (compared to the $80,000). Such a move improves the firm’s ROI, ROAS, and results in more revenue the firm may use to cover operating costs.
Poor Intake as a Cause of Lead Loss
There are many instances in which a law firm’s intake process deficiencies can cause lead losses:
- Slow staff responses to incoming phone calls and web leads
- Inability to answer phone calls and web leads 24/7/365, which means the firm is non-responsive to calls after-hours or on weekends and holidays
- No way to handle call overflow
- Not tracking leads
- No bilingual staff
Hiring dedicated intake specialists as full-time in-house employees rarely, if ever, makes sense from an economic standpoint. It also does not solve the issue of phone calls and web leads coming in after-hours or on holidays.
However, there remains a cost-effective solution to significantly reduce law firm lead loss rate.
How to Stop Lead Loss
Legal call centers have customized the intake process. They can provide 24/7/365 call-answering and web lead response service, as well as bilingual assistance for potential clients. Legal call centers accelerate a firm’s responsiveness to incoming leads which significantly reduces the numbers of leads lost.
Partnering with a legal call center also relieves law firm staff of the time it takes to respond to and qualify potential leads. Beyond lowering lead loss rates, this frees a law firm’s staff to focus on what they do best—providing legal services to their clients.