Episode Transcript
[00:00:00] Morgan and Morgan's Referral operation does 63 million a year in revenue.
[00:00:04] That number is public. Dan Morgan has set it from a stage, and I want you to sit with it for a second, because that's not their firm's revenue. That's one business line inside the firm. And that one line is bigger than the entire top line of almost every law firm in this country, probably including yours. Now, here's the part that actually matters. Where does that money come from? It comes from the cases they decided not to handle. National marketing. Phone calls ringing all day, and somebody pulls up a file and says, this one's not for us. But instead of that case going in the trash, it goes out the door with the number attached to it. Now, a few weeks ago, I sat with Dan in Orlando and asked him a question that I wanted the answer to. Not how big is it? But what's the margin on it? Dollar for dollar, is there anything more profitable anywhere in your business?
[00:00:52] Now, he gave me a number. It was not the number I expected. It's not public yet. And I'm not going to spoil it, because that conversation drops August 12, and you should hear it from him here on the relay. But I will tell you this much, and his answer is the reason I'm sitting here by myself recording this today. Because every one of you has the same situation that Morgan does. Every firm in America has it.
[00:01:14] Wrong state, wrong practice area. Too small conflict. Whatever the reason is, you're talking to people. You paid for every single one of those phone calls, and they walked back out with Nothing. Morgan built a 63 million business out of theirs. And frankly, they're probably in your market right now making money on referrals.
[00:01:34] You may have something going on, but you also have people in your intake desk saying, unfortunately, 40 times a day. So let's add it up. Welcome to the Relay, the show for personal injury law firm owners. Presented by lexemica. I'm. I'm Gabriel Steeritz, and today it's just me. Before we go any further obvious disclosure here, I run a referral technology company. I have a dog in the fight. So discount everything I say by whatever number you think is fair. As always, I would rather you check the math for yourself, which is what a lot of this episode is anyway. And speaking of math, I want to do something first that I think almost no one in the industry has done, which is to put a number on how big the problem or opportunity actually is going to build it in front of you out loud. And you can throw out any piece you disagree with. And frankly, I would love for you to do that. Hit me with an email, a text message, a comment, and tell me where I'm getting wrong on the opportunity for referrals across the country.
[00:02:28] But let me talk with what I do know for certain, which is that at the beginning of the year, we had about 200,000 referrals going through Luxemic on an annualized basis. Today, that number is just under 340,000. I anticipate the number being well over half a million referrals on an annualized basis. And that is everything. That's not just personal injury cases or mass tort cases. That's absolutely everything. We see family law, immigration, criminal, landlord, tenant. If someone can think that there's a lawyer involved in the claim, that is something that ultimately ends up crossing Lexamica. And so we see it all, and we also see what has value, what doesn't have value today. And there's a lot of opportunity here. But what I can say is that we see the overwhelming majority of referrals for some of the largest firms in the country. And we're also seeing how, for the most part, referrals still happen the way that they've always happened. A text message, a phone call, someone that you met at a conference, and you make an intro, and then you don't think about it anymore.
[00:03:28] So let's just say across all platforms, that's 10% of the real activity, which means there's somewhere north of 3 million referrals a year in this country across all law firms. That, again, this is all ballparky, and I'd love for you to tell me where I'm getting wrong here, but that number is roughly consistent with something that I have said for years, which is that somewhere between 20 to 30% of all claims end up being referred between lawyers at some point. And while that may sound high, what I do know is that is very true for personal injury, where it's about 15, 20. But if you go into mass torts, which is a very large space, that number rises well into the 70 to 80%. So, gut level, that feels pretty concrete to me, and maybe even conservative. But then there's the part that people don't count for, which is cases that get referred to someone or the ones that have the ability to get referred and end up getting declined. And there is customer demand. You get a phone call that is real intent, real inbound intent. And every time you say no, not because it's not a valid case, but because it's Not a case that you would take.
[00:04:34] That is a referral opportunity. And I think that that total number rises to probably another 3 million cases a year that are just dying at the intake desk. Especially if you're thinking about class actions, mass tort, mass arbs. It turns out there's a very large percentage of the population that has some type of a legal claim that someone else would one, sign and two, pay you a referral fee on when that call comes in or when that person has a relationship with you and a valid claim.
[00:05:05] So let's put a value on that. Look, they're not all home runs. It's, they're all not policy limit truck cases. Although there's a shocking number of stories where I've talked to someone who's turned down a trucking case just because it was out of state and they didn't know an attorney right off the bat to handle that case. But let's just talk about ordinary ones. If an average decline case is worth even a few thousand dollars in a foregone referral fee, you're landing at $10 billion in revenue that's not currently going to law firms that are spending money on marketing, spending money on the relationships and building trust with clients. And that's $10 billion a year of exhaust in the plaintiff bar. So listen, you can tear up any input in this that you want. It's back of napkin. But I think it would be really hard for you to tear down the fact that there is a lot of wasted value. There are a lot of people who aren't getting legal help. There are people who don't even know that they could be getting legal help, who have claims that could generate referral fees for your law firm. And I don't think that you would be able to convince me that number is even under a billion dollars a year. It's, it's at least in the single digit billions. So it's not a rounding error and it's certainly not just a Morgan and Morgan thing. It's the largest unclaimed pile of money in the industry. You look, you, I, I respect you guys. You know how to make money on the cases that you do want. What I don't think is that you know how to make money on the cases that you don't want or that you aren't out looking for through your marketing channels. And it's sitting in the 50,000 personal injury firms across this country who aren't building funnels to capture that. And so that brings me to the first thing that people Say when I bring up Morgan, which is, yeah, look, Morgan markets all over the place. They market in 50 states. They get cases they can't possibly handle. That's not my situation.
[00:06:51] And I will push back on that because I actually think it's backwards. Morgan takes. Takes so many practice areas. They take things all over the country. Their criteria are enormous and their practice areas run wider than almost anyone's. And if you want to fact check me on this, go look at their published guide for the case types and locations where you can refer them a case that they will look at, which means that this stuff that falls outside of their criteria is narrower than what it is that you're looking for. Now look at your firm. Say you do auto in three markets. That's a great business, but it's a very narrow box. Every slip and fall. Premise liability, med mal, case with work comp, dog bite, and that's just in injury claims, not to mention employment law, immigration, family law, criminal. So, yeah, Morgan's pile is bigger in dollars, but as a percentage of what you paid for theirs is actually probably bigger than theirs. And the more specialized you are, the more waste you generate per marketing dollar. And that's. That's just the math. So the second one that I object to, and this one's smarter, so let me get to it before you do, is you say, hey, hold on. When you talk about how profitable it is, you're not counting the cost of marketing that generated the lead in the first place.
[00:07:55] And I. Of course not. You're right, I'm not. And you shouldn't either, because we're talking about a referral program that is built into a law firm that is handling their own cases. But the fact of the matter is that you did already spend that money. It's gone. And whether the case leaves your firm with a number on it or dies on the phone on a Tuesday, there's no version of the world where you get that back. And that's why I keep using the word exhaust. Exhaust is what's left over from what's burned from the fuel. The question's not whether the fuel is expensive. The question is how much value is going out the tailpipe back into the air, and how much are you able to capture and generate additional profit. So there's two piles here, and most people only ever think about the first one. Pile one is the cases you turn down. This is the obvious one. Wrong jurisdiction, wrong practice area damage is too small for your economics conflict statute about to run, and you don't want to Touch it, though, that one's finicky. And like, I wouldn't push you to be aggressive about that, because the last thing you want is to have have somebody else sign the case and then run the statute. And that's your ethics problem. But every one of those was a real person with a real problem who called your firm because your marketing worked, it did its job, and then you said no, and that was the end of it.
[00:09:04] Pile 2 is the one that people don't talk about much. And this is bigger. And that's the pile of cases that you should not have kept. And here's what I mean. You sign a case with a $50,000 policy, it's a legitimate case. Your client got hurt. You're going to fight for them, and you should. And that fight takes you two years, two and a half, and on the best possible day, you clear $15,000 fee. Now, the same case goes out the door in week one. Someone built for that case takes it. Your client gets great representation because honestly, that's what they do all day. And you get five or six thousand dollars for making a phone call. Yes, it's less money, but you get back 30 months of your lawyer, your case manager, your paralegal. And the question is not, did I make less on that one. The question is, what did I do in those 30 months? And instead, and this is what I'm seeing from the best law firms, and I go to masterminds and conferences, and I sit in the rooms and talk with the firms. And many of the best firms that are doing the best marketing are moving up market, and they're making this exact decision. This is not a theoretical, hypothetical scenario. This is what the best firms are doing.
[00:10:06] They're looking at that question and they're making a decision to say, we will refer those cases out because they went into a case where the V has another zero on it. You don't lose money on the referral. You buy back time at a discount, and that's spending it correctly. So every signed case feels like a win. But that is, to some extent, a trap. A signature is not necessarily a win. It is a commitment of your capacity. And capacity is a genuinely scarce part of your business.
[00:10:35] So why has nobody at your firm put a number on any of this? And maybe they have, and maybe you're thinking about this, but for the sake of this discussion, let's say you're not looking at this yet. The reason is because it never becomes a transaction. It never becomes a line. There's no invoice no report. Look, if you had a spot on your P and L where a hundred grand a month went out and nothing came back, someone would be standing in your office about it. There would be a meeting, there would be discussions, maybe arguments about it. But this isn't happening on the P and L. It happens at the intake desk. Phone call and someone saying, unfortunately. And then that case that could have been that referral fee that could have been, just disappears. And listen, this isn't a you thing. This is happening literally at the biggest law firms in the country who are doing this exact thing and coming to us. And we're saying, hey, how many cases did you turn down last month and what kind were they in? Where were they? And they say, I don't know, like, we don't track that. Well, that's your exhaust. You aren't putting a monitor on the exhaust of your firm. So what is your number? There's inputs here. And you can do the back of the napkin math even while we're talking here. And if you can't, I would say, look, don't buy Lexamica today. Go figure out what your exhaust is worth and then go from there. Figure out if it's worth doing something about. And that's my challenge to you. So the question, the first one is, how many people did you decline last month? Leads, calls, et cetera? How many people did you say no to? That's the big number. Now, that's not sufficient because look, the reality is all of those could be landlord tenant cases and those aren't referable with the fee, at least not to me today. I, I don't have a network of lawyers that are handling landlord tenant cases and paying referral fees. And if you do, you may want to tell me about it, but you also may want to keep that a secret because you're probably making more money than most law firms out there. But the second piece is, what are the percentage of those that are claims that someone have been able to take and pay a referral fee on? It's not a hundred percent. It's not zero. It's somewhere in the range. The kind of bottom case of this, and I've seen this because I, we have law firms that will just send us absolutely everything, a hundred percent of what they decline. I'm going to tell you the worst case scenario here is it's about seven and a half percent if you just take a bucket of leads and say, I'm going to push them all over here, I don't know what kind they are. Or anything like that, you're going to end up signing seven, half to 8% of those as cases that pay referral fees. And then the last question is, well, what's the typical fee on those case types?
[00:12:56] And the fourth is, what's the split? And multiply all those together. That. That's your slice of referral fee math that you can do for your firm. Again, this isn't me telling you what it is. I don't know your firm. Anyone who quotes you a number for your firm without seeing your firm is trying to sell you something, which you could say that I am, but I'm really not. I just want you to understand this for your firm, because you could go out and do this without me. You could start pushing these cases out the door and making referral fees if you're not. But here's what I actually think happens when you try this. You first, you get stuck on input. Number one, you don't know how many people you're turning away last month. Many people don't track it at all because nothing happens. It's silent failure. And so that's a finding, and that's what this whole episode is in a sentence is that in. In large part, the number's unknown because the number was never worth knowing. And it was never worth knowing because you never got anything back on it. And you never faced any pain when you turned someone away and sent them to the bar because, look, they didn't have a case.
[00:13:51] But that brings me to the part where I stop being annoying about your intake desk and admit there's a genuinely good reason you're not doing this already, which is you probably tried. A lot of people tried. In fact, you could say that almost everyone tried. You sent a case to somebody you met at a conference, a good guy, firm handshake, maybe you golf together. And then nothing. No confirmation that it got signed. You sent a few more cases, you got no updates, no answer when you followed up, or worse, hey, yeah, we're working on it. And that meant absolutely nothing. And if you've seen me at a conference, I'll tell kinds of crazy stories about Ukrainian bodyguards and people showing up in each other's offices and stopping each other on the sidewalk to write referral fee checks, because it's actually that crazy. But eventually you stop asking, and then it starts to feel weird, and then you lose some friends, and then you just stop doing referrals the way that you did before. But the fact is, like, your response is generally correct. Like, you ran the experiment, you got no signal back, and then you stopped running it. That's not laziness. That's a functional brain and a good way to run an experiment. When there is failure, the problem is not that you pick the wrong person, the problem is that there just isn't a way to track those things. And when you're doing phone calls and emails, it becomes really tricky. So three things you can't see once a case leaves your office. One is, did it get signed? You have to know that one, because if it gets signed, like now, you're on the hook in almost every state on some level for the ethics of that, Right? And if not the ethics, then certainly strong case that that's your brand, right? Like you sent a person to another law firm, they got signed up, and now they're going to look at you and say, well, this you sent me here. That's. That's your problem, not mine. So not only do you need to know that it was signed, you need to know if someone's working on it. And then ultimately did it resolve? And does that number match what it actually resulted in? Because I've also heard plenty of stories of getting a referral fee check for something and then the lawyer finding out later that that case resolved for significantly more and more. All of those are the places where the relationship dies.
[00:15:46] And listen, I mean, we could talk about trust, we could talk about morality, we could talk about people being crooks. It people have good intentions, stuff gets lost in the shuffle. All I'm saying is what you can't see, you can't see. And people don't stay committed to things they can't see. And a lot of times all of these things fall into the background. Look behind the curtain. I think more times than not, it's not that people are out to get each other, it's that life is busy, things get lost in a shuffle. Referrals are hard to keep track of. So what do the firms that are good at this actually do differently? Well, they do four things, and I want to be clear that none of these are a piece of software, Right? Like what we do. Yes, it helps with this, but the reality is you do all of this without me. And I'm going to keep saying that because I genuinely think that the industry needs more of this, regardless of whether I'm helping or we're helping or not. So the first one is, is written criteria. Look, your intake team is where it all starts. You need an actual document or rule set or whatever that says. These are the case types. These are the jurisdictions, these are damage thresholds that we don't keep. So the decision gets made and you have that piece but you, that feeds directly into a list of what goes and where it goes by case type, by state. You can get way sophisticated with it. We have firms that have very specific criteria that the lower value cases go here, catastrophic cases go here. This sub case type goes over here.
[00:17:07] Listen, you can do it on a word doc, you can do it on a spreadsheet, you can do it with, with the rule engine. You have to know where everything's going to go at the time of intake because it has to be on that initial phone call so that it can move quickly.
[00:17:19] And then three, you need a follow up cadence. I mean, look, ideally you get updates in real time, but at a minimum you want to get updates a few times a year. So you know what's going on in the case. You have to have someone checking in on it, which is the fourth piece, which is that a person owns it. And, and this is true whether you're, you're using like SAMC or not. Like we have to have someone on your side who, even if it's a small part of their job, has a level of ownership over it. You can outsource almost a hundred percent, but you still have to have someone who owns this because it dies in firms where there's no ownership. And that's generally true. Like if it lives in the owner's cell phone, which I've seen, it really just doesn't exist. Right. That person's way too busy and it's going to get lost. And this is a role. And even in large law firms it becomes something that gets owned by a person who is responsible for the outcomes around this. And then the last thing is that you can't send your garbage out and expect just good cases to come back. The firms you want in your network are running the same evaluations that you are and they finish the evaluation. You send them cases that have bad documentation or the client's angry, or the client doesn't under, doesn't know they've been referred. And, and then they will get mad at you because regardless of how much value you're creating, law firms, and I'm sure that you're personally aware of this, they are sensitive to bad client experiences. And if you're creating those, you're creating noise for a team.
[00:18:44] Even if you're a generally a good referral partner, you just can't do that. You're going to get cut off by the best firms. The ones that you most want to work with are going to be the ones that cut you off and tell you, hey, listen, this isn't working anymore. It doesn't matter that we're all generating value here because or creating too much noise and too much downside to the client experience. So let me put this where it really matters for a lot of you, which is the value of the thing that you're building.
[00:19:09] The great thing is, and this is the salesiest part of all of it for me, in terms of convincing you of do why it's worth doing. Your, your outbound referral motion is that it has no operating costs associated to it. Once it's out the door, you have no intake team, no case manager, no medical management, no litigation spend, no case costs. Law firms that handle referral claims, they're not asking you to do anything at all. And a lot of them don't have a marketing budget. They don't need to have you do anything for them other than send them cases. Which means that a dollar of this moves directly to your bottom line more completely than a dollar of any other case revenue does. And you aren't accruing expenses over the life of the case. So if you're anywhere near a conversation about selling or bringing in a capital partner or handling handing this thing to your kids, that flows straight through to a multiple, because that is your ebitda. And I've said this before on the show, referrals are one of the five things that actually drive the value of a plaintiff firm. And it's one that almost no one has documented. I've gotten calls before from sophisticated M and A folks saying, hey, this law firm that I'm looking at has referral cases that they've put out and they're expecting referral fees on. Are these legit? And the questions that I ask are, what's the documentation? Is there a retainer attached to it? What's the proof that this has been negotiated in a way that that is.
[00:20:30] That is going to result in a fee coming back. You can do this well and get zero credit for it because you haven't documented this correctly and a buyer won't value it at all. So here's your takeaway. And it's one thing, so get input. Number one, how many people in your firm did you turn away last month? Not an estimate. Get the number ask for today. See if anyone can provide it by Friday. If they can, great. Like, you're ahead of most firms and now you can go do the rest of the math. If no one can. It's not failure, it's a finding and that's what we're talking about now because there are billions of dollars out there in pieces that are pretty small but worth looking for and you can go find your piece of it as well and build equity value and cash flow for your firm and come back on August 12th. Dan Morgan will tell me what the margin of this actually is at Morgan and Morgan. I asked him straight out, I said dollar for dollar is there anything more profitable in your entire business?
[00:21:22] And his answer is the reason I recorded this episode. I would be clear 20 minutes for that one.
[00:21:29] So thanks for listening. If this was useful send it to someone else in your firm who's going to have a go and find that number. And if you think I'm wrong about any of this I would love to hear about it. Email me comment etc. This is the relay presented by Lexamica. See you next time.
