Professional services CAC: partner time and lost bids

0:05Host:This is MBA Training. On the table: Consulting firms answer 229 RFPs a year, and the lost ones never reach CAC. Picture a boardroom on a Tuesday. The managing partner has the overhead report open, a red pen in hand, and she's circling the events budget, because it looks expensive per client.

0:26Expert:And three seats down, a partner who just spent a year and a half courting one general counsel is nodding along. His time costs nothing, apparently.

0:36Host:Free. Like airport wifi.

0:38Expert:Exactly like airport wifi. You pay for it, just not at the counter.

0:44Host:Okay, the claim. Your client acquisition cost, the CAC, what it costs to land one new client, is wrong in every law firm and consultancy. All of them?

0:55Expert:Nearly all. Ask any firm and they'll give you a number built from the marketing budget: directory listings, sponsorships, the website, the CRM licence for the client database. Divide that by new clients and you're done. It's too low by a multiple, and the partners know it.

1:14Host:They know it and they say nothing.

1:17Expert:Saying nothing is convenient. Hinge, a marketing agency that sells to professional services firms, so keep that in mind, found in its high-growth research this year that referrals and direct human outreach bring in nearly two-thirds of new business.

1:33Host:Hang on, say that again.

1:35Expert:Two-thirds of new work arrives through channels that run on a partner's calendar. A cash-only CAC measures the minority channel and ignores the majority. It's like checking your fuel economy by weighing the air freshener.

1:49Host:So the CMO, the chief marketing officer, reports the air freshener every quarter.

1:56Expert:Every quarter, with a nice chart. And Thomson Reuters' Law Firm Financial Index says overhead is climbing faster than it has in a couple of years. Marketing sits in overhead. Partner pursuit time is buried in compensation. So when someone goes looking for cuts, marketing looks fat and partner pursuit looks free.

2:17Host:Both wrong.

2:18Expert:Both wrong, and nobody but the CMO is positioned to say so.

2:23Host:Quick aside, because this week has its own "invisible cost" story. Adweek reported advertisers pulling Meta ads because Meta's AI tools "enhanced" their creative without being asked.

2:35Expert:An AI glow-up nobody ordered. Picture a law firm's ad coming back with a lens flare.

2:42Host:Litigation, now with sparkle. And it landed the same week Meta posted earnings. Revenue up about a quarter, ads performing better, headcount well down after layoffs in May.

2:53Expert:That last part sits badly with me. Record revenue, and fewer people in the building to enjoy it. But there's the link: Meta gets to measure everything. Our firms measure the cheap part and call it the whole picture.

3:09Host:Fine, back to your side of the fence. Bids. Formal RFPs, requests for proposal, where the client invites a pile of firms to pitch. What are you seeing?

3:20Expert:Volume going up, discipline going down. Loopio, which sells RFP response software, so treat this as directional, puts management consulting firms at around 229 RFPs a year.

3:34Host:Two hundred and... that's nearly one every working day.

3:39Expert:One a day, each one a small novel. Loopio also says fewer teams are sticking to their go/no-go criteria, meaning the rules for deciding whether to bid at all. More bids with less filtering means more losing proposals, and none of them show up in CAC.

3:58Host:Here's my pushback. The losers are sunk cost. Why should a win carry the bill for a bid I lost?

4:05Expert:Because the losses are what it costs to run the process. Every signed engagement letter has a few dead proposals stacked behind it. Professional services also has failure modes other industries don't. A pursuit killed at the conflict check, the search for whether you're already acting against this client. A pursuit blocked by auditor independence rules. A prospect who fails anti-money-laundering due diligence after a partner has spent months on lunches.

4:34Host:Months of lunches, then compliance says no.

4:37Expert:Then compliance says no. Whose cost is that? Not marketing's, according to the P&L.

4:44Host:Has this ever bitten anyone at scale?

4:46Expert:UK audit tendering. Back in 2019 a House of Commons committee found challenger firms were reluctant to bid for big-company audits because tendering was expensive and they rarely won. Pursuit write-offs decided who was allowed in the room. The same arithmetic decides which markets your firm can afford to enter.

5:08Host:Okay, partner time. How do you put a price on an hour that was never billed?

5:13Expert:Not with salary. The SaaS playbook, software-subscription companies, splits a sales rep's salary between new and existing customers. Equity partners don't have a salary in that sense. What they cost the firm is the fee income they didn't earn. So the hour is priced at the realized rate, what actually gets collected after discounts and write-downs, not the rate card.

5:38Host:Because the rate card is fiction.

5:40Expert:Aspirational fiction. Then a displacement factor on top: the chance that pitch hour actually pushed out a billable one.

5:49Host:And this is where I think you're too generous to the partners. A partner sitting idle who goes to a pitch costs the firm nothing. That hour was dead anyway.

5:58Expert:Partly true, and it bothers me. SPI Research, whose benchmark is sponsored by software vendors including Deltek, found billable utilization at its lowest in the survey's history. So yes, lots of pitch hours come out of slack.

6:15Host:There you go. Slack is free.

6:17Expert:Slack isn't free. It's already paid for. And in a practice running flat out, every pitch hour is a billed hour lost. A single firm-wide factor hides that, so it has to be set practice by practice.

6:32Host:I still think the idle hour is closer to zero than you'd like.

6:36Expert:And I think "closer to zero" is how partners end up pitching eleven hopeless panels. We'll argue about it at the Christmas party.

6:44Host:Do firms even record this time?

6:46Expert:More than people assume. LeanLaw, which sells law firm billing software, so another vendor, notes that Wilson Sonsini credits business development hours toward billable targets, Sidley credits thought leadership, and White & Case credits pro bono and BD. Once there's credit, the time gets logged. It just goes into a generic "BD" code instead of against a named pursuit.

7:12Host:A drawer labelled "miscellaneous."

7:15Expert:The firm's junk drawer. Batteries, takeaway menus, three million dollars of partner time.

7:22Host:And the timing problem. You're measuring sales cycles of around 18 months.

7:27Expert:Which is why calendar-year CAC is nonsense. It divides this year's spend by wins seeded last year. A firm that ramps up pursuit looks like it's bleeding. A firm that cuts pursuit looks brilliant for a year and a half while its pipeline quietly dries up.

7:45Host:Ah. The diet that works until it really doesn't.

7:49Expert:So the CAC is a cohort number. Tag every pursuit opened in a quarter, follow it until it signs or is formally declared dead, and only count it as won when the engagement letter is signed and the checks have cleared. A verbal yes over a nice lunch doesn't count.

8:07Host:How big is the gap when you do it properly?

8:10Expert:The article runs a hypothetical practice, purely illustrative. Load in proposal staff, partner hours at realized rate, and scoping work written off, and the true cost per client comes out almost five times the marketing-only figure. Most of the gap is partner time.

8:27Host:Five times. That's not a rounding error, that's a different business.

8:32Expert:It's a different set of decisions. Which bids, which channels, which cuts. The managing partner with the red pen is circling the wrong line.

8:41Host:Now the uncomfortable one. Doesn't this become a league table for shaming partners?

8:47Expert:It does, if someone's careless. Per partner, it turns straight into a fight over compensation and origination credit, meaning who gets paid for bringing the client in. At practice level it's a management tool. At partner level it's a weapon.

9:03Host:Other ways it lies?

9:05Expert:Cross-selling to existing clients shouldn't be loaded into new-client cost, or account management makes acquisition look ruinous. Small cohorts are noisy too: one giant tender can distort a whole practice's number. And the data is sensitive. Pursuit records hold prospect names and conflict outcomes.

9:26Host:So the spreadsheet becomes the most confidential document in the building.

9:30Expert:Right after the partner pay sheet. Which, funnily enough, is where the cost was hiding all along.

9:37Host:Who's being bold here, then?

9:39Expert:The firms moving the conflict and due-diligence checks to the first week of a pursuit, instead of month nine. And the ones asking a blunt question before they bid: does our chance of winning, times what the first engagement earns, beat what the pitch will cost? Audits and panel appointments often lose money in year one and pay back over a decade. Fine. But then a named partner owns that assumption in writing.

10:06Host:Owns it. That's the part that scares people.

10:09Expert:It scares people because it turns a partner's hunch into a bet with a name on it.

10:14Host:So back to the boardroom. Red pen, events budget, and the partner who spent a year and a half on lunches.

10:21Expert:Still nodding.

10:23Host:Still on airport wifi.

10:25Expert:Still assuming it's free.

10:28Host:Which leaves me wondering how many firms would keep half their pitches if every partner hour carried a price tag on the calendar invite. Drawn from Hinge Marketing, Thomsonreuters and Zoomforth, links in the show notes. End of episode. The CMO calculators are running at mba-training.com.