The Power of Numbers

I should have been an accountant, but in my rebel youth I decided to buck the family trend and do something wild and dangerous instead. I became a lawyer. Genetically, like my balding head, I suspect I was predisposed to numbers, unlike so many of our profession. Therein lies a problem, and I hope over the next 1,600 words or so to explain the solution.

In our profession we apply logic to facts, which leads us to an opinion. An opinion seldom agreed with by our colleagues, whether in a conveyance, a contract or a court. Simply put, there is seldom a “right” answer, and indeed much of the skill is being able to argue your case. Numbers however are more difficult to dispute, particularly if you have enough of them and are sufficiently detached in their analysis. What I’d like to look at is some simple examples of numbers and how they might help legal practices build ever better businesses.

 

Let’s start by looking at a few simple areas. For example, how many firms know what the value of their average client is? How much profit might they make out of that client over the client’s lifetime or that of the practice? 

“There is no such thing as an average client!” I hear you shout. That is not correct. One might as well say there is no such thing as an average law firm, but the Law Society of Scotland’s financial benchmarking (formerly cost of time) survey shows us annually some very interesting numbers about firms, collated from a wide and diverse spectrum of participants. It’s the same with your own clients, and the more data you can collect across your whole client range, the better you will be able to identify what your average client looks like, and hopefully what they are worth financially to your business. Where information isn’t available, educated guesses are starting points and can be checked and refined with further data.

The simple table below shows an example of what a new client might be worth to a high street conveyancing firm, assuming that people buy a house four times in their life and the client retention rate is 75% (i.e. a quarter of clients, for whatever reason, do not instruct you in their next transaction). This is modelling at its simplest level but hopefully you get the idea. The more data you have, the more accurate the figure becomes. It’s about asking yourself the right questions rather than doing the arithmetic, and you can quickly adapt the numbers to include other services. How many of these clients take a will, a power of attorney? How many might realistically become an executory? With each new set of data captured, the model becomes more accurate and more useful. Though the simplest of models is better than none!

Why is all this extra work important? Well, if you know the value of a client, you can work out how much you might be willing to invest to acquire that client (or one just like them). Again the numbers will tell how we can best invest either time or money for the maximum return. One of the easiest methods to gauge is “pay per click”. From a few pence to several pounds, you can agree with Google that every time someone searches for a word (for example “lawyer”) your advert will be put in front of them, and if they click on it you will be charged the agreed sum. Very quickly you can gauge how many people are clicking through, and how many you are converting into clients. As you may already realise, clicks without buying are just an expense in the same way that advertising without getting sales is a waste of money. Even these “empty” clicks, though, can provide much more useful data. Is the word actually what clients are using when thinking of your service? It might be that you find that for the public, the word means something else. If so, try another word and see if that works better. Perhaps both words will bring in work. 

You can then start to analyse why else these clicks may not be turning into clients. Do you have the right systems to convert interested consumers to clients? Are you achieving the best possible conversion rates from clicks to clients? Again, testing different messages both on the website or on the phone will help you maximise the return. All you need to do is test, record the results and then follow the numbers.

 

This same analysis can be applied to clients acquired through your golf membership, local newspaper adverts or how many clients come to you due to your office location. It simply comes down to logging the data and being clear and analytical when doing so. Remember also that some client acquisition costs might have a greater benefit for the practice. For example, not everyone who receives a mailshot can tell you it was that letter that made them call, but you can measure those that do and factor in a figure to represent business that flows from simply having kept in touch.

Better yet, you can start to compare the figures for different methods of acquiring clients and then examine whether you can refine these further. Taking the “pay per click” example again, trying different words will change the numbers. On converting clicks to clients, changing the picture on the web page that it takes you to will probably change the numbers, and changing the proposition on that page from “we will charge you” to “we will save you” might also do so. Each change brings more numbers, more understanding and a better and better system for minimising the cost per client acquired. Again the same rules apply to all areas of business development.

 

Numbers will also tell you how happy your clients are with your services. Many firms still appear reluctant to ask clients for feedback, either during or after a transaction. Do we assume that clients will complain if they are unhappy? No, but if asked they might tell you the parts of the system that didn’t work well for them, giving you a chance to further refine what you do and how, and more importantly, to engage with that client with a much higher potential to retain them (adding in turn to their lifetime value). 

One of the most fascinating numbers I’ve come across recently is the maths around carrying out a perfect transaction – that is, a transaction where nothing goes wrong. Let’s say that a transaction can be split into a number of parts, say 50. Let’s also say we are a pretty good firm and get things right 90% of the time. The chances of us having a 100% correct transaction are 0.5%, or only 1 in 200! Even at 99% accuracy it is still only a 60% chance of everything going perfectly. The numbers show us that even in a well-run office, a very high percentage of clients will have at least something to grumble about.

What does that tell us? I suggest it means that if clients are expensive to acquire, and/or have a huge lifetime value to the firm, we might want to “overengineer” our services. Like the great Victorian builders, we might want to be so much better than is required for the job that the chance of failure in any part is zero. There is of course a huge cost in both time and people resources, but knowing the numbers involved you can make an informed decision as to whether that investment is worthwhile. Similarly if clients are cheap to acquire and/or have little value, it might be that this natural wastage isn’t a problem and still leaves us with a highly profitable model where a level of error isn’t an issue and it is accepted that clients will only use us for small areas of work. I hope this doesn’t sound too basic, but I am amazed at how many firms appear to be offering fabulously high-level services to relatively low profit margin clients. Even without doing the numbers, if you have a very loyal client following, you are so busy that you struggle to cope, yet struggle to make substantial profits, then that’s probably you.

 

Understanding the cumulative effect of change is also an extremely powerful tool. Suppose after considering some of the foregoing you manage to double the number of clients that you attract, and by clever cross-selling double the number of services that you provide to your “average” client. Let’s also say that you are able to double the profit margin through cheaper marketing and an appropriate use of technology. How much would your profit grow by? An amazing 800%!! Improving one thing helps, but improving many different areas can change a business exponentially. Even small changes over several areas can lead to significant improvements. It’s why great sportsmen seldom focus on only one part of their game. It’s the cumulative effect over multiple areas that begins to build meaningful returns.

There are though a few numbers that we all understand well: 60, 24 and 7, the number of minutes to the hour, hours to the day and days available in a week. As with everything here, you have a choice as to how you spend them. Can you get better value out of them? If the results you are achieving are not what you wish, something has to change. Doing more of the same is unlikely to bring that about. The other numbers I’ve touched on might just help you work out the types of changes that will and perhaps won’t work.

Few practices will have their “numbers” easily to hand. It will involve time and effort to locate them, or might only be possible to gather them moving forward. 

I hope, though, that this piece has helped demonstrate that the effort is worthwhile. If you remember the movie 21, where a young group of MIT students devised a system to count cards and by doing so tilted the odds in their favour and won huge sums from US casinos, why wouldn’t you want to stack the odds in your own favour when it comes to playing the legal market? 

 

 

 

Stephen Vallance works with HM Connect, the referral and support network operated by
Harper Macleod