You’ve got to know your numbers

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How much is a new client worth to you? You need to know this so you can make better decisions about how much you can spend to acquire and service them.

If a new client is worth $5,000 on average and it costs you $1,000 in overhead to handle their matter, you might conclude that you can afford to spend another $1,000 to bring in a new client.

Spend $3,000, earn $2,000 profit, rinse and repeat.

To figure out how much a new client is worth to you, don’t limit yourself to the amount they pay initially. A new client might pay you $5,000 today and another $25,000 over their “lifetime”.

On the other hand, “lifetime” is a long time and you should probably use a shorter period, say two- or three-years. If the average client pays you $10,000 over their initial three years, for example, you’ll have a better idea of how much you can spend to acquire and service them.

Don’t forget to include the value of their referrals. If the average client refers one client or case every three years, and that client pays you $10,000 over their first three years, that means that a new client is worth $20,000 to you.

Knowing your numbers also tells you where you might need to make some changes. You may look at the average value of a new client and decide you need to get some better-paying clients. You might see that while you don’t make that much initially, you make a good profit on the back end and, therefore, can afford to spend more to bring in new clients. Or, you might realize the opposite. You don’t make a lot more after the initial engagement or case and so you have to maximize profits on the front end.

You might realize that you’re paying too much in overhead for each client. Or you may realize that you don’t spend that much per client and you can afford to hire more staff to handle the work, freeing up more of your time to do higher-margin trial work, networking, or other marketing projects.

Anyway, you need to know your numbers.

How many referrals does the average client give you?

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