The publication of the Legal Services Board’s research on referral fees has created a debate that, while an important issue for the profession to discuss, distracts attention from the real issue for firms.I would suggest there is a more important question than whether or not referral fees are a good thing. That question is: what does it cost to acquire one new matter with the accompanying new client? Growing commercial competition will mean this is an important management metric to measure and use. It’s the job of claims management companies and referral businesses to make it easy for your firm to use their services. The alternatives are often seen as complicated, mostly expensive and bound up in advertising and promotional mumbo-jumbo. There are risks in all types of sources. For example, in the personal injury sector, Marketlaw comes across many firms that are reliant on only one source of referrals. This may be comfortable but it is expensive and a risk to the firm if it disappears. We also see firms that proudly say they never pay referral fees and remain busy and profitable. So there are alternatives.

Paying for contacts is a marketing management choice that should be based on facts and figures about the best value methods of acquiring new matters and clients. There’s a balance between the cost of good quality enquiries that you can get now, versus the time and less visible costs of developing your own referral sources. Both are important to have as the legal service market changes. A referral fee arrangement has some commercial value, but a well-managed network of referrers can provide significant competitive advantage.

If your firm can look at and answer the next question – where does your profitable work come from?, with figures and contact lists, then your firm has the ability to look for more of it. This analysis should aim to highlight what client types your firm is looking for. From there you can develop a range of work sources that suits that defined group. And you have to manage actively the relationships within those multiple networks. Does your firm currently measure the number, type and quality of incoming referrals? Do you use that data to inform marketing management decisions? If not, you should.