April 22, 2023
This is a new series of articles on improving the value of your law firm. It is aimed at smaller high street practices. The first article is on adding value by recording client source information.
How many firms actually know where all their clients come from? I suspect it is not as many as you would think, looking at the information we get when we prepare valuation reports. A lot of law firm owners are able to tell us that they get a good number of walk ins, or their website is very popular, but very few can actually give us the specific information.
Keeping a record of the sources for all your clients is very important for the purposes of increasing the value of your business. If you make sure that you have a record of all your clients and where they come from then anybody who is looking to purchase a practice can immediately see where the business is picking up clients.
Buyer Decisions
A difficult decision for just about any buyer is understanding the future potential sources of clients a law firm has for in terms of clients coming to it, and if you have a record showing exactly where clients have come from in the past year or more, then it immediately alleviates that concern.
Referral Payments
I don’t intend to comment on the good or the bad issues around paying referral fees, but from a saleability perspective it is not actually a bad thing to pay for referrals. A lot of solicitors think that paying referral fees is not a good thing – after all they have managed to source clients without paying anyone for them – but in terms of achieving a business sale it’s actually quite a benefit because a potential buyer can immediately see that if they continue paying the referral fees they continue getting the referrals.
If you are not paying referral fees, then it does mean that a potential buyer is dependent on the future cooperation of the person who is making the referrals. It may be that if there is no consideration involved, the person making the referral may not bother continuing that arrangement in future..
Personal Relationships
A lot of solicitors firms have a personal relationships with other professionals which can include estate agents, financial advisers and accountants, as well as other law firms. These personal relationships are very useful when you are running the business, but if a new buyer is coming in, they need to be able to tap into the same personal relationships in order to be able to generate an income in the same way that you have. This is much harder to quantify if there is no record showing who the relationships are with, how they are formed, how much business there is arising from the relationships and also how the buyer is going to tap into them.
Website
Another main source of work is your website, and it can be a very useful exercise to set yourself up with Google Analytics, Google Webmaster tools or similar. You can produce some very useful reports showing when somebody has visited your website as well as set up conversion or target pages for recording actions.
This data is very useful to any potential buyers because it shows whether or not your website is working and who is visiting it. For example if there is a statistic in the reports from your website showing that 90% of your visitors are from Indonesia but all of your clients are from south London, the chances are that your website is not going to be a very effective or profitable source of work. However, if it shows that 90% of the visitors are from London, and about 40% of those click through to register an interest or contact you, then there is going to be value in the website.
Walk In Clients
If you get walk in clients, similarly it can be very useful to know exactly what the walk in clients produced in terms of fees generated. The reason for this is because your premises may or may not add value to your business. If there are very few walk ins and virtually all your clients are coming from referrals or recommendations, then there is a little value to the buyer in having the business in its current location.
Recommendations
Recommendations from clients are another good useful piece of evidence for potential buyers, so if you can keep a record of who has been recommended to the business, how they were recommended, then a buyer can see that they’ve not all come from one source for example, or they are coming from one particular location, which can be then targeted with further advertising.
Summary
There is a lot of information that can come out of sources of clients which can add to the saleability of a law firm. This is of course very often something that needs to be planned in advance in order to be able to record the data.
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