This is a great article from the National Law Review that compares paid non-exclusive vs exclusive lead generation, conversion and return on investment.
The lesson applies to all businesses…not just legal
These variables determine the real cost of new customer acquisition.
In order to effectively sustain a legal practice, attorneys must constantly generate new case lead opportunities and retain clients. This is an important concept that attorneys understand very well, but the marketing and lead generation process is complicated, and executing it successfully and consistently can be challenging. And even for firms that have successful brand marketing and lead generation strategies, additional opportunities to grow a legal practice are usually being evaluated.
There is enough demand for this service that there are a large number of lead generation firms dedicated to providing new case opportunities to attorneys and law firms. While legal lead generation firms are all based on the foundation of providing new case opportunities to attorneys, it can be difficult to differentiate between the various business models and how they affect the way a program works, overall costs and potential results.
This article is focused on how different lead distribution models affect cost per lead and cost per acquisition, as well as the effect of lead conversion rates on client acquisition costs and return on investment (ROI) for attorneys. Lead generation programs utilize two different lead distribution models to send new case leads to attorneys: exclusive lead distribution and non-exclusive lead distribution.
Non-Exclusive Lead Distribution: Cost per Lead vs. Cost per Acquisition
Non-exclusive lead distribution models are based on generating new case leads in a particular market area, and then selling a lead to multiple attorneys that compete for it. At face value, non-exclusive lead distribution models can look quite attractive to attorneys because they typically offer a low cost per lead, such as $50-$150 for a personal injury lead.
The Impact of Direct Competition: Cost per Lead and Conversion Rates
While direct cost per lead is low, cost per acquisition is higher when you consider lead conversion rates. For example, a firm that uses a non-exclusive lead distribution model sells a personal injury lead for $100 to an attorney. The direct cost per lead to the attorney is relatively low, but that lead is then sold to three other attorneys. This means that four attorneys are now directly competing with each other to contact and win the lead.
Even though the direct cost for a case lead is low, the probability of landing a new case decreases based on the number of direct competitors vying for the same lead. Factors such as response time are even more critical to help increase the chance of bringing on a new client, but there is still a lower overall probability of winning a new case due to the additional direct competition.
Cost per Acquisition
In terms of overall value, it is much more important to focus on the cost per acquisition, which is the cost required to secure a new client, than the simple cost per lead. For most attorneys, a conservative lead conversion rate is 10% (i.e., an attorney brings on one new client for every 10 new case leads with which they follow up). However, when direct competition is factored into the equation an attorney’s typical lead conversion rate declines based on the number of competitors.
In the example above, where a lead generation firm sells a personal injury case lead to four attorneys, all things held constant, there is a 25% chance of any given attorney landing the new case over the other three. When the direct competition (25% conversion probability) is factored into the attorney’s typical lead conversion rate of 10%, it effectively lowers their lead conversion rate to 2.5%. In this example, an attorney, on average, would need to purchase 40 case leads to land one new client. As a result, the $100 cost per lead actually translates to a cost of $4,000 to acquire one new client.
Exclusive Lead Distribution: Cost per Lead vs. Cost per Acquisition
Exclusive lead distribution models are based on generating new case leads in a particular market area for one attorney exclusively, which means that there is no direct competition when an attorney receives a new case lead. At initial glance, exclusive lead distribution models can look much more expensive than non-exclusive lead models because they typically have a higher cost per lead, such as $200-$400 for a personal injury lead.
Cost per Acquisition
While direct cost is higher when compared to non-exclusive lead models, overall value becomes much more attractive when you consider the cost per acquisition. For example, an exclusive lead distribution firm provides 10 new personal injury case leads for $3,000 per month. The cost per lead is $300, which is three times higher than the comparative non-exclusive example. However, without direct competitors factored into the equation an attorney’s typical lead conversion rate is unaffected and remains the same.
If we use the same conservative lead conversion rate of 10%, then an attorney would need to receive, on average, 10 new case leads to bring on one new client. As a result, the $300 cost per lead actually translates to $3,000 to acquire one new client.
The Impact on Attorney ROI: Conversion Rates and Program Cost and Features
When using a lead generation firm, the two most important metrics to evaluate are the program cost and features and lead conversion rate. These two metrics will determine the return on investment (ROI) for attorneys and play a role in understanding the overall program value, if any.
Evaluating Program Cost and Features
Evaluating the cost and features for a lead generation program is a crucial component to understanding the lead conversion rate potential and cost per acquisition. The first place to start is the cost per lead. That number should be readily available through any discussion with a lead generation firm. Once the cost per lead is identified, you should clarify what kind of distribution model they use and what is included in the cost per lead.
In many cases, the cost per lead only involves a call or email transfer of the lead to an attorney; however, other firms may also include extra value-added services in the cost per lead, such as a personal account representative, 24/7 lead processing, live lead transfer, etc. This is important because those additional services can play a key role in assisting with lead conversion rates, which directly affect the cost per acquisition and ROI for an attorney.
Conversion Rates, Cost per Acquisition and ROI
Generally speaking, exclusive lead distribution models have a better lead conversion rate than non-exclusive models due to the lack of direct competition. This is noteworthy because an incremental increase in the lead conversion rate can have a major impact on the cost per acquisition and ROI, as demonstrated below.
For example, a lead generation firm using an exclusive lead distribution model charges $3,000 per month for 10 personal injury case leads. The cost per lead is $300. If an attorney has a 10% lead conversion rate, the cost per acquisition is $3,000 (same as the example above).
If the lead conversion rate is 20%, which is more typical with exclusive lead distribution models, instead of acquiring one new client for every 10 case leads (10% conversion rate), an attorney would acquire two new clients for every 10 case leads. The 20% lead conversion rate now brings the cost per acquisition for one new client to $1,500.
Moreover, let’s say an lead generation firm, which uses an exclusive lead distribution model, includes additional features in the $300 cost per lead, such as 24/7 lead processing, a lead management solution and an account representative for tips and guidance, that help an attorney average a 30% lead conversion rate over the course of a year. This means that the attorney now acquires, on average, three new clients for every 10 case leads, which translates to a cost per acquisition of $1,000. In this scenario, any earnings per client over $1,000 would result in a return on investment for the lead generation program. The lower an attorney can move the cost per acquisition for a new client, the higher the return on investment for the attorney.
– See more at: http://www.natlawreview.com/article/real-cost-legal-lead-generation-programs#sthash.J8wNzhAc.dpuf