How to Set Your Cost of Acquisition Like a Pro

📊 Most law firms are flying blind when it comes to marketing spend. In this episode, Danny Decker breaks down exactly how to calculate client lifetime value and use it to set a realistic, confident cost of acquisition. If you’re basing your budget on what feels right instead of what’s actually profitable, this conversation will flip your perspective—and your math.

📌 Key Takeaways

• Learn how to calculate your client’s lifetime value beyond the first invoice.
• Discover the 10% rule for setting your ideal cost of acquisition.
• Understand how referrals and re-engagements affect your real marketing ROI.

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Chapters

• 0:00 Understanding Client Lifetime Value
• 0:34 Calculating Direct Client Value
• 1:26 Adding Referral Value
• 2:19 Setting Acquisition Cost Targets
• 2:59 Episode Wrap and Call to Action

Transcript

Speaker 1: 0:00

This is really important because, as you're thinking about budgeting for your ad campaigns and assessing whether you're successful or not, this type of information is what you base that on, right? So some hypothetical numbers, right? The first thing we're going to do is calculate average client lifetime value, and that's going to be made up of a couple of different things. I'm going to throw some numbers out here. Let's imagine this is a family law firm, right? Maybe slightly higher price than average, maybe in a mid-market town like Charlotte, and let's think through the fact that there are typically going to be more them. This example $7,500. But from conversations with many law firms, we understand many of you will then have multiple engagements, maybe a modification down the road, right? And so what is that second engagement going to be worth on average? In this case, let's throw $5,000 out there. And so what this has created is a direct client value of $12,500. On average, that is what a client is going to be worth to this law firm $12,500.

Speaker 1: 1:13

Okay, but we're not done yet, because many times, clients especially when you have a good experience with them are going to make referrals, and you may have some clients that make multiple referrals. You may have other clients that make no referrals. Just to make the math easy, I'm saying let's assume that each client, on average, at some point during the duration of your relationship with them, is going to make a referral. Okay, if they make one referral now, you've bumped your client lifetime value all the way to $25,000. In other words, that new client that you brought in the door might be worth $7,500 today, but over the next several years they're going to reengage you, they're going to make a referral and they're ultimately going to be worth $25,000 to you. It's important that you do this because otherwise you might limit yourself, right? If you just take this exact example and say no, this client is only worth $7,500 to my firm, well, now you're not looking at the full picture, you're not recognizing the amount of value that a new client represents, and so you're probably going to undersell this.

Speaker 1: 2:19

Next step, right? Which is what are you willing to spend in order to attract this client? That's going to be worth twenty five thousand dollars. No right or wrong answer, but just sort of a rule of thumb that we use a lot is a 10 percent target cost of acquisition. In other words, to attract a client worth twenty five thousand dollars to your law firm. You may be willing to spend up to twenty five hundred dollars, right. Again, these are just sort of hypothetical numbers. You can plug them in for your own firm. But the bottom line is is I want you to end up with a target cost of acquisition, because that is ultimately how you assess whether this stuff is working.

Speaker 2: 2:59

Thanks for listening to today's preview from this week's episode. If you had any thoughts on it, please leave us a review. We would greatly appreciate it. Don't forget if you love your lawyer friends, let them know about the Law Firm Marketing Minute. We'll see you tomorrow.