Legal Futures recently reported the following finding from SRA’s interim thematic report on conveyancing, which I found quite puzzling:

“conveyancing clients were in most cases no less financially valuable to firms than other clients, going against the popular myth of conveyancing work being ‘low value, high volume’,” according to the SRA’s most recent performance report. “However, some firms will be paying referral fees out of this income.”

That finding has made the reading of the final report when published a must read for every conveyancing firm and interested observer. In the meantime, my current unease with that finding relates to two issues:

  • whether the financial value of conveyancing clients to many firms is measured based on gross revenue or profit margin compared to other client types
  • whether the financial value of conveyancing clients to many firms is measured based on the perceived lifetime value of such clients

Is it a myth that residential conveyancing is ‘low value, high volume’ work?

It depends on what is categorised as ‘value’ in this context. Prior to the recession firms that undertook significant amounts of remortgage work would have classified the work as being financial valuable  from the standpoint of turnover because of the interest gained on client monies but it was common knowledge that profit margin per transaction was very low which was why high volume was extremely crucial. Likewise, in mainstream residential conveyancing, the work may be perceived as financial valuable with regard to the relative contribution to the turnover of many firms but the costs of achieving such turnover are in many cases very high which invariably results in the profit margin per transaction being relatively low.

If the financial value of conveyancing clients to many firms is primarily because of its profit contribution then one could argue that firms may be more able to take a bit of a hit arising from loss of membership of lenders panels. On the contrary, because of the relatively low profit margin of conveyancing work, many firms have to retain sufficient volumes in order to generate an appropriate return on their investment particularly in view of the inherent risks in this work category.

Despite the current difficult economic conditions, some firms are generating significant value from their conveyancing client base but for such firms, the value is measured primarily based on profit margin underpinned by a ‘lifetime value of clients’ approach.  I was impressed by the case study of Forster Dean Solicitors delivered by Gregory Shields, CEO at the Legal Futures ‘The cutting edge of law’ 2012 conference.

The case study was further summarised in a recent Legal Futures article. The firm’s ability to keep its cost of providing its conveyancing service as low as possible (including non payment of referral fees) whilst simultaneously achieving a high proportion of new business through recommendation or repeat business demonstrates a good understanding of leveraging the ‘lifetime value of client’ concept.

The lifetime value of client/customer concept is well known in other sectors and although adapted by organisations to fit their unique contexts, it focuses on helping organisations to take a long term view of clients (including appropriate segmentation). This approach is based on an ongoing relationship with clients and an assessment of the likely profit margin (net present value) at future touch points with such clients. I particularly like the blog post by Seth Godin because it succinctly summarises why businesses should embrace lifetime value of clients. Likewise the ‘5 insights for executives’ and ‘Customer lifetime value ‘ reports by Ernst & Young is helpful to business to assess the true financial value of their clients.

Whilst I consider that the ‘lifetime value of clients’ concept should be more widely adopted by firms offering conveyancing services. I am not suggesting that the financial value of conveyancing clients based on the relative gross revenue generated should be disregarded. On the contrary, such management information is relevant as long as it is recognised that it provides a partial picture of performance, which in some cases may be misleading.