Dear Lawtrades investors,
Welcome to the Q2 2020 update. It feels like the world changed so much from just three months ago.
Last quarter, we said we were going to do $730k in sales, and we achieved over $780k—despite COVID-related layoffs with a few of our customers. This work has been done by a small group of smart, driven, and customer experience obsessed people across all areas of the company.
We are proud to continue to lower our cost structure so we can deliver the highest value in the industry, increase the speed to hire, and add more talent selections—even obscure practice areas and hard-to-find work arrangements.
Heads down on the customer experience helped us make substantial progress this quarter:
Lawtrades has historically been built on two brand promises: speed and selection. As of this year, we added a third brand promise pillar: tirelessly lowering prices. Lawtrades exists to serve everyone and in order to that we need to continuously search for new ways to leverage technology that will allow us to deliver our services at lower and lower price points. Our goal is to deliver the highest possible value to the customer, which will in turn maximize shareholder value.
By keeping our prices the lowest in the industry, we earn trust with customers over time, and that increases our free cash flow to reinvest back into growth.
Sam Walton, founder of Wal-Mart said it perfectly:
“… But this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of the increased volume.”
Jeff Bezos also mentioned something to extent of there being two types of companies—ones who work hard to charge more and ones who work hard to charge less. Like Amazon, this is Lawtrades’ philosophy as well.
To that end, our strategy is to capitalize on the structural advantages inherent in being an internet-enabled and vertically-integrated legal company. Our platform not only affords us an advantage in speed and cost, but creates a flywheel loop that fuels rapid growth. A lower cost structure affords us lower prices which fuels more client demand. This inevitably attracts more lawyers to join the platform, which gives us more coverage to enable faster matches, which again grows demand, and so on...
Combining topline growth with consistent gross margins and operations that scale smoothly, gives us a leveraged operating model for our business. Our costs are primarily composed of three parts: sales and marketing, R&D, and general and administrative. As we continue to grow, we expect all three components to decline as a percentage of our total revenues.
Sales and marketing
As mentioned, we’ve seen significant improvements to our marketing efficiencies, which we can figure out by comparing the growth of our revenues to marketing expenditures. For example, since 2019, we spent $130k with one paid acquisition channel that allowed us to generate over $1M in revenues—at 7:1 marketing ROI. Given our constant gross margins, strong retention, and the propensity of our customers to spend more over time, I believe we can achieve a 20:1 ratio over the next two years or less.
Lawtrades is not a normal service. Our deep talent selection is unconstrained by geography and normal working hours. We personalize matches and quotes for each and every customer. We trade office space for technology (which gets cheaper and more capable every year). You can purchase 1 hour of work or hire a fleet of lawyers across every US state with a few clicks. It’s truly a magical experience.
General and Administrative
Our extensive use of technology and smart contracts to automate many common functions in customer onboarding and back office work is unique to the legal industry and will allow us to deliver a superior experience to our customers at a lower cost and with far fewer employees than traditional law firms or staffing agencies. Our automations are fast, scaleable, and learning to tackle new tasks everyday, allowing us to operate with low marginal costs and pass those savings on to our customers. These investments will pay dividends for years to come and our fast improving adjusted EBITDA margin is proof of this:
It’s hard to imagine a world where Lawtrades customers do not want lower prices, faster hires, or better selection. We are 100% committed to leveraging our scale and volume to deliver prices that can be as much as 40-50% below that of competitors. It is a technically challenging pursuit that will require the highest level of execution and innovation from the team, but this is exactly the kind of adventure we thrive in.
As always, we at Lawtrades are grateful to our customers for their trust, to each other for our hard work, and to our investors for their support and encouragement.
Founder and Chief Executive Officer