Over the years of working with law firms, I have found that many of them can’t answer some pretty basic questions, such as:
What do you spend on marketing?
What do you spend on business development?
What percentage of your firm’s revenue are these expenditures?
What are you spending per lawyer on business development and marketing, including the salaries and benefits of your marketing and business development staff?
These numbers shouldn’t be a mystery and are not things that you need to summon the Great Ouija to determine. It is simply a matter of getting things sorted out and organized. Once you do, these fundamental numbers will allow you to see how you are doing in terms of your marketing and business development activities. In many cases, it just takes asking your accounting department or your accounting firm to reorganize your monthly statements in a way that you can easily capture these expenses.
Getting these numbers all sorted out will cause some pretty interesting things to emerge.
The branding vs. revenue generating spend
It is easy to determine what you are spending on marketing activities (branding and generating awareness) and what you are spending on business development (bringing in new clients or expanding work with existing clients), both of which are important and go hand-in-hand. But many firms are surprised, once they do this analysis, that most of their money is being spent on marketing. It’s important to remember that marketing typically doesn’t generate any direct revenue, so it needs to be carefully evaluated to see if maybe some of these resources should be allocated toward your business development efforts.
Getting all these expenses accounted for and put into two line items allows you to look at what percent of your firm revenue is being spent on these activities. Typically high-performing law firms spend about 2 to 3 percent of revenue on business development and marketing. This is a good benchmark to follow. If you are too low, you could probably benefit financially from a ROI standpoint by spending more. If you are too high, well, have a look to see what is really driving awareness and new business. Might be time to trim the budget back and use that money elsewhere.
Prospects or clients
Another good analysis that I see firms miss all the time is looking at what percentage of their lawyers’ business development time is being spent on current clients versus on the hunt for new business. High-performing firms spend most of their lawyers’ business development time expanding work with existing clients and nurturing those clients to make sure they stick with the firm. If you look at these numbers and see that you have lots of lawyers and hours and hours of time spent on activities like talking to strangers, cold calling (in a way that is ethically acceptable), answering RFPs from total strangers, or other such activities, then you may need to rethink your strategy and focus more effort on your current clients.
Allocation by revenue generators
And if you really want to go crazy, have a look at how the marketing and business development dollars are allocated to your service lines based upon the revenue that is being generated. Are you spending a lot of money and time promoting and nurturing low-margin, low-revenue work? Or are you spending, as you should be, on high-margin, high-value services? There is such a thing as utilizing the “loss leader” strategy with legal services. So, don’t abandon services that get your foot in the door with clients, but make sure that once you are in, you are focused on expanding the work to include the high-value, high-margin work. And spend your marketing and business development dollars to support the high-margin services, not evenly across the board.
How you spend your marketing and business development dollars is up to you. Ask the Great Ouija or your accounting department. Although the Ouija board might be more fun, you will probably make better business decisions by asking your accounting department to reorganize your expenses and revenue to give you a picture even the Great Ouija couldn’t conjure.•
Dona Stohler of S2 Law Firm Strategies provides consulting services on business development and marketing for law firms. Stohler has more than a decade of experience in the legal services industry and is the past chair of the U.S. Law Firm Group marketing committee. She can be reached at email@example.com or through www.S2lawfirmstrategies.com. The opinions expressed are those of the author.