Did you do it for love?
Did you do it for money?
Did you do it for spite?
Did you think you had to, honey?
Who is gonna make it?
We’ll find out in the long run
(In the long run)
I know we can take it
If our love is a strong one
(Is a strong one)
-Eagles, The Long Run, 1979
Injury lawyers don’t do math very well.
One common refrain I hear from injury lawyers is that “yea I get the big cases, they come in every now and then, but my average profit per case is $3,000, so my average cost per case needs to be much lower than that.”
The general gist of what they’re saying is that they make $3,000 per case on average, and that, yea they get the big cases every now and then, but those don’t really count because they don’t happen that often. That’s the way these guys talk about average case value. Yea the six and seven figure cases come in every now and then, but they don’t affect my average case value because they’re so seldom.
This just makes the accountant in me want to scream, cry, and eat ice cream.
Oh wait, maybe the wanting to eat ice cream thing is just me.
Average case value means the average of all your cases. All your cases.
Let’s see how huge settlement contingency or referral fees can affect average case value over the course of a year.
Scenario 1 – Getting One $500,000 Fee Each Year
Let’s say a high volume accident lawyer averages 30 cases each month. Over the course of a year, that’s 360 cases.
Let’s say that the lawyer claims that the average case value is $3,000, but concedes that yes, once a year, on average, through either a large contingency or referral fee, they get a big score of $500,000.
359 cases bring in an average of $3,000 in profit.
1 case brings in an average of $500,000 in profit.
The lawyer has a nonchalance attitude about the big case each year, yea they come in every now and then but I don’t count them since they’re so seldom, and he claims that his average case value is $3,000.
But in reality, when you average $3,000 359 times and $500,000 1 time, the actual average case value is $4,381.
Ahhhh, the beauty of math.
If this lawyer is paying an average cost per case from AdWords of $2,000, his profit per case is not the $1,000 he claims it is ($3,000 – $2,000), it is actually $2,381 ($4,381 – $2,000).
And if his AdWords campaign is bringing him 30 cases a month at a cost of $2,000 per case, he is not making a $360,000 annual profit from AdWords, he is actually making a $857,160 annual profit from AdWords, a 138% difference.
Scenario 2 – Getting One $1,000,000 Fee Each Year
Just for fun, let’s consider what happens if a personal injury lawyer gets just one $1,000,000 fee each year and 359 other cases where the average case value is $3,000.
Instead of making $3,000 per case, when you count the once-a-year million dollar score, he’s making $5,769 per case. That’s how much one big score each year can influence the average cost per case.
And if the cost of generating a case from AdWords is $2,000, he’s not making a $1,000 profit per case from AdWords, he’s making a $3,769 profit per case.
And he’s not making $360,000 a year from AdWords, he’s making $1,356,840, a 277% difference!
This Is Important
The problem is variance. Sometimes these high-volume firms go multiple years without a huge score, and other times they have three mega fee cases in just one year. That’s variance. And most people can’t handle variance and really don’t understand the long term.
So even though math is math, human nature is human nature, and human nature trumps math.
Most injury lawyers won’t factor in the mega cases they’ll get over the long term from high-case-volume AdWords campaigns, but a handful will, and that handful will know their true cost per case and they’ll be willing to bid higher on AdWords to get more cases, and they’ll make more money in the long run.
Here’s to math.
Here’s to the long run.