The Ugly Economics of Live Chat

Conrad Saam | April 28, 2015

The promise of live chat is extremely compelling… vetted, qualified leads at a cost of just $35. Who wouldn’t do that?

But this number is such a (very) small part of the true cost of Live Chat.  What follows is a framework to evaluate the true business economics of chat. Feel free to plug in your own assumptions to calculate the economics for your own business.  (Note: There are lots of chat options out there; my examples below center around the big player, NGage.)

But first, I know a lot of very smart (and very mathematically driven) attorneys who utilize live chat on very large sites. Having said that, I hate the user experience it delivers –  the only thing more annoying than live chat is the cheesy, green-screened, walk out video with autoplay audio. My thoughts echo Jay Fleishman’s who described live chat thusly:

I think it comes off as looking cheap. Unless the chat can respond to queries, it’s like calling your cable company and getting someone on the other end who can’t (or won’t) do anything of any value – frustrating.

The Three Economic Impacts of Live Chat

1.Increased Cost per Client

This is the most easy to understand cost of Live Chat – $35 per qualified lead.  Assuming you can convert half of the qualified leads, that’s a cost of ($35/0.5) = $70 per client.  Right?  Maybe not…

What we forget is that chat is a conversion tool, not a marketing investment and the cost of chat needs to be added to the marketing channel that generated the user.  So we need to add $35 per lead on top of that marketing spend (PPC, Avvo Advertising, SEO etc.) So a $300 cost per prospect goes up to $335 – certainly not enough to break the bank, but not insignificant.

More problematically – many firms view chat as a marketing channel and misallocate that conversion to “chat” instead of the marketing spend that generated the prospect.

2.Decreased Conversion Rate

As a marketing agency, the best advice Mockingbird gives many of our clients is to stop spending money on marketing and instead, focus on converting existing leads into clients. And there’s simply nothing more effective at converting than immediately talking to a professional, knowledgable, empathetic, human who has a sense of urgency.

My concern here is the qualified prospect who continues shopping around after engaging with an impersonal, outsourced, routinized, zero value-add script.  Ryan Pitz of the Intake Academy (a consultancy that specializes in conversion optimization for law firms) interviewed NGage VP, Alex Hambrick who said:

You have to realize there’s a good chance these people have filled out a contact form on your site and they’ve also filled out a contact form on three or four other attorney’s sites, and you might not be the first attorney who’s called them back. You have to approach it as though the competition has already gotten to that potential client.

This is a huge red flag – the cost of NOT converting immediately is very high indeed as you lose business to the firm across the street.  Economically this has two impacts:

1. Increased cost/client – now that you are converting at a lower rate, your cost per client is increasing.  Let’s (very conservatively) assume that phone calls are 25% more effective at converting leads than chat. Also assume you are spending roughly $1,000 in marketing dollars per signed client.  The drop in conversion rate for those who chat instead of call increases your cost per client:  $1,000/(1 – .25) = $1,333.
2. Lost Business – and oh – lets not overlook the lost revenue of those prospects who signed with your competitor after calling them and immediately reaching a knowledgable, caring lawyer who made them feel taken care of.

NOTE: Lawyers frequently complain about the volume of unqualified leads they receive and the expense in vetting those leads.  Live Chat can be a very cost effective way of filtering out unqualified leads – say those from out of state for example. Given the cost per qualified lead billing model for Live Chat – the direct cost in filtering out unqualifieds is essentially zero. However, in my opinion, the benefit of converting qualified leads at a very high rate far outstrips the cost of vetting those unqualified leads.

3.Large Cost per Incremental Client

Finally, how effective is Live Chat in driving incremental business? Put more simply, how many additional qualified prospects on a firm’s website contact that firm through Live Chat, who wouldn’t have otherwise picked up the phone or completed an online form. Even being optimistic, I can’t imagine that number exceeds 1 in 50.

The economics are pretty simple to analyze – $35 x 50 leads = $1,750 per incremental lead.  Now assume that after actually talking with an attorney, half of those leads are really qualified and we’re up to $1,750/.5 = $3,500 per qualified lead. Finally, assume the attorney can close half of those qualified leads, and our cost balloons to $7,000 per incremental client.

Guidelines for Chat

Remember that chat providers are optimized to maximize their revenue, not your business.  If I were to utilize chat, I’d want to make sure it could do the following things differently from the typical chat install.

• Day-parting – activate only when my front desk wasn’t covered at night, or weekends – times when its hard to reach a person in my office and my conversion rates are lower than normal due to the lack of phone presence.
• Customizable Deployment – NGage is set to pop up within a specified time interval (I think 17 seconds) that has been tested to optimize the volume of chats.  I’d want to be able to set rules for when it pops up – say a specific number of pages viewed, for example instead of aggressively bombarding users.
• Mobile – chat shouldn’t dominate the precious screen real estate of mobile phones.  Chat on mobile is unwieldy at best and . . . the user literally has a phone in their hand, why on earth would you push chat instead?

A Chat Counterexample:

So, let’s come full circle and see how Jay Fleishman handles conversions on his own site.  (And note – Jay is not a client, just a small firm lawyer I’ve known for many years who really gets marketing.)  Here’s the button from his home page – note that it is user initiated, skipping the obnoxious take-over popup – kind of looks like chat, but built with the user in mind.

And the button takes users to a mind-numbingly simple contact us form (below).  Note both a phone number and email address built into his site’s header, so prospects have many different ways to contact Jay.  Except of course chat, because Jay would rather talk with them directly.  And so would they.

I hope this has given you a framework to assess the efficacy of live chat for your own law firm – but have no illusions that the price tag is much higher than $35.