Setting the Marketing Budget for Optimal Law Firm Performance

Establishing and controlling practical marketing budgets is essential to the financial health and ultimate success of the attorney. A "balanced" budget, that is, one that addresses various marketing issues and contains a variety of marketing activities, is required for the most effective long-range results. There are four methods commonly used by attorneys to establish marketing budgets.

Enlightened attorneys are developing a formal procedure for establishing client-focused marketing budgets. Individual attorneys, whether sole practitioners or operating within the context of a mega-firm, are realizing the value of having clearly defined, measurable costs of marketing. The budget needs to be developed and implemented if the total businesses plan of the firm-no matter how small or how large-is to succeed.

Sometimes the pressure to develop budgets comes from the firm’s own financial people who want a better handle on marketing costs. In larger firms where there is a marketing director or coordinator responsible for a budget, this person will want an accurate and realistic budget which can be monitored and measured against preset objectives (this also prevents "dumping," a common practice of attorneys to charge to the marketing budget those expenses not clearly assignable to any other particular budget).

The most effective marketing budgets reflect a balance between low- level efforts and those that require more energy. Good budgets lay out programs that devote attorney resources to the "low-hanging fruit" or work that is easy to get. This is usually work from existing clients. But good budgets also lay out programs for obtaining work that is harder to obtain but necessary for long-term practice growth.

BALANCING THE BUDGET

Marketing budgets should be based on the 40/40/20 guideline of budget development. These are percentages of marketing targets or segments. Attorneys should plan to

• Spend 40 percent of a marketing budget "selling" existing services to existing (or recent past) clients, that is, the easiest "new work" to obtain.
   
• Spend 40 percent of a marketing budget "selling" existing services to new clients or new services to old clients, that is, new work that is more difficult to get.
   
• Spend 20 percent of a marketing budget "selling" new services to new clients, that is, the work that is hardest to get.

If business in any one area falls off a little, the remaining business generated from the split marketing effort will continue to account for at least some of the attorney's business.

Most marketing efforts are both client-focused and aimed at new clients. For example, a seminar for clients on a tax issue may be designed only for clients, but attorneys will often use the opportunity to invite non-clients. Also, they will hope (and maybe actively encourage) their clients to make referrals. Therefore, the client-focused seminar has an indirect and larger benefit for business development.

Other activities that appear to be non-client-focused also have this dual benefit. A speech to a Rotary Club is a client-focused activity even if there are no clients in the audience. How can this be? Because any activity that causes the attorney to be recognized as an authority on a topic reinforces existing client relationships. The effort enables the attorney to hone research and speaking skills; news coverage or word-of-mouth publicity resulting from the speech will impress existing clients and perhaps remind past clients of the attorney's continued work in a certain practice area.

DIRECT VERSUS INDIRECT COSTS

Another general guideline for budget planning is to allocate one-half of the business development budget to direct marketing costs and the other half to indirect,

Direct marketing costs are those activities aimed at a specific client or known target for a specific kind of work. Examples are the effort of an attorney or firm to capture legal work in worker's compensation at the XYZ Manufacturing Company or, more broadly, to capture all employee-employer legal work at high-technology firms within 50 miles of the office (which includes the XYZ Company). Most but not all of the cost for this activity will be in attorney time. Direct marketing is the personal involvement of attorneys or firm administrators to capture the business through activities such as research, interviews, visitations, social events, and so on. It also includes brochures and other outside costs to produce items used for the specific target.

Indirect marketing costs are major marketing support activities, sometimes called public relations that are of a more general nature, although they may be aimed at a specific target group. These activities involve both personal attorney time and impersonal components such as brochures or newsletters. In larger firms, indirect marketing is usually controlled by a marketing coordinator; in smaller firms, it is controlled by a partner or someone with appropriate interest and skills. Of the 50 percent spent for indirect marketing, a general guideline is that half will be in attorney and staff time to control and monitor the activities and the other half will be outside expenses such as public relations assistance, "image" advertising, memberships, entertainment, and so on.

CHOOSING THE RIGHT FORMULA FOR YOU

There are four generally accepted methods for attorneys to determine their business development budgets. In strict marketing terms, budgets can be set by one of four methods (which can be called "control" factors):

PERCENTAGE-OF-FEES METHOD

Attorneys can set aside the appropriate funds for the business development by using the percentages described. The process to determine this is very simple.

An attorney or firm has $1 million in fees (or projects $1 million in fees) in a year, can spend, say, $125,000 or 12 percent. This method is by far the most popular, as it uses a fixed percentage of the previous year's fee (or at least an average of the past several years). The main advantage of this method is that the expenditures are directly related to funds available-the more fees collected, the more dollars available for promotion.

The disadvantage is that this method is illogical, because it assumes that business development budgets can be set on the basis of past income or, in other words, that the budgets are the result of income rather than the cause. There is little room for flexibility, plus an attorney or firm may under-spend when the potential is great and overspend when the potential is low.

A variation of this method that often makes more sense is to determine budgets based on anticipated fee income, recognizing that business development precedes rather than follows income.

Recent studies have shown that 44 percent of advertisers of non-consumer goods used the percentage fees (on sales) method. Of those, 28 percent based budgets on anticipated income and 16 percent on past income.

COMPETITIVE NECESSITY

Another method frequently used by attorneys is to set a budget based on the amount of real or perceived activity of the competition. Essentially, this boils down to matching or exceeding a level of activity that others seem to be doing.
This method is fraught with problems. At best it is risky, smacking of throwing dollars at a problem merely because "the other guys are doing it." This method also assumes that one attorney's objectives in business development are the same as the competitors', which is not a valid assumption. Plus, the amount of spending by the competition is very difficult to find out and can only be estimated. The dollars spent then are based on results seen from the competition and a general effort to achieve the same results, a further disadvantage is that an attorney can react only after the competition has developed a program and the results are seen.

Competitive analysis should rarely be the sole basis for determining business development budgets.

BUDGETS BY OBJECTIVE

The objective method is a process of setting a specific goal and then allocating money to obtain it. For attorneys, the objective is usually defined in terms of a percentage of new business from existing clients (or recent past clients) or in terms of a number of new contacts within a new client group. Then a determination of how much money will be necessary to achieve these goals is made. If the cost is greater than the money available, either the objectives must be scaled down or additional funds must be found.

Sometimes this method is called the *'whatever-it-takes-to-get-there" method.

ALL YOU CAN AFFORD

Another method is to set aside profit or surplus over expenses. This amount can vary considerably in a short period of time. This approach is by definition the "affordable approach," which means that marketing costs will be appropriated after all other unavoidable investments and expenses have been allocated, including partner bonuses, and so on. This rule ensures that firms with limited resources are not wasting money.

On the other hand, experience has shown that firms embracing this approach consider marketing to be a discretionary budget item and therefore the first expense to be reduced when revenue goes down. The wisdom of this approach is usually suspect, because the lack of marketing may have caused the revenue to go down in the first place!