An essential part of any attorney business development is a budget established exclusively for this purpose. Two questions continually arise in discussing budgets: What items are included in marketing? How much should I spend on them?
These questions are highly intertwined. One research study says attorneys on an average spend 1 percent of their gross fees for marketing. Another survey says that individuals and firms of fewer than 20 attorneys should devote 25 percent of gross fees to business development. Why the huge discrepancy?
The difference can lie in the type of practice. Attorneys in consumer or "retail" law require more marketing effort to remain competitive, since by definition their practices are oriented more toward transactions than to relationships. But a greater reason for the difference most likely lies in the accounting.
The first budget percentage is way too low, and includes only hard, out- of-pocket costs for things like brochure design and printing. At the same time, everything else that legitimately belongs in the attorney marketing budget is put somewhere else, probably into a catch-all budget item called "overhead." The second budget guideline is way too high and includes all attorney time (at billable rates) that is not billed to administration or to clients. It also includes things like interior office plant services and virtually every expense account item not re-billed to clients.
Assigning accurate costs and expenses to a business development bud get is important to monitor the program and keep it on track. It enables the attorney to judge if they are doing too little or too much in the business development area.
But figures like these are meaningless unless specific details of the costs are stated. Costs are both internal (attorney and staff time) and external (out-of-pocket money paid to others for goods and services). Only by looking at both internal and external costs can a true picture of marketing budgets be obtained.
COST GUIDELINES
The cost of business development can be divided into two categories of time and out-of-pocket. Budgets by definition identify line item costs, both in terms of attorney time and out-of-pocket expenses. Each line item is therefore an action item of a marketing plan, with a cost assigned to it.
The average business development expenses for law firms differentiates between firms that base their business on transactions vs. those that base their business on relationships. The marketing costs for the transactional attorney are generally greater, due to the effort required to bring in a large amount of clients and separate legal matters, a significant amount of the additional cost comes in direct promotion such as advertising expenses.
PREDICTING COSTS
While the costs of various business development activities are important to know before beginning, they are tough to predict. There can be tremendous variation in time and expenses. The overriding guideline is to make sure- in the end-it is accurately accounted for.
Attorneys know very well that there are many variables that affect the cost of their services. Likewise, guidelines on the cost of training, brochures, newsletters, and seminars can vary widely, depending on many factors. If a client asks an attorney "How much will probate cost?"-a natural question-the answer is always couched in terms that define a scope of work, level of quality of end product, and amount of expected time to complete, providing certain criteria are present and unforeseen circumstances do not significantly change the situation during the course of work. In other words, the cost can be estimated beforehand but can change as the work progresses. Marketing costs are no different.
ACCOUNTING FOR MARKETING TIME
The hidden expense in marketing is the cost of attorney time or, more important, the loss of revenue that results from it. So when attorneys are budgeting time for marketing, they must clearly realize the value of this "hidden" cost. They must also establish strict definitions of what is chargeable to the marketing budget and what is not. This prevents attorneys charging hours and expenses to the budget for items that do not belong there.
To calculate marketing budgets, attorneys can account for time
- at its direct labor cost, which is the actual cost per hour to the firm of the individual. This will include payroll burden of taxes and benefits, as well as pro-rated overhead expense.
- at the billable rate, which will reflect the loss of revenue to the firm rather than the actual cost.
Either method is fine, as long as everyone understands which approach is being taken. Most attorneys prefer the loss of revenue method, although this results in an artificially high "cost" of marketing. On the other hand, it is a realistic number. One $100-hour spent on marketing and not spent on billable time is clearly a "cost" of marketing.
Several of the marketing plans and budgets assume that the attorney is capable of billing and collecting 2,000 hours annually and that the amount of hours devoted to marketing is subtracted from that total. In other words, an attorney devoting 15 percent of time to marketing will have an annual budget of 1,700 billable hours. There are other ways that attorneys can budget for marketing hours.
Some firms simply add the hours to the attorney's billable goal for the year. So in the example, the attorney must charge 2,300 hours annually, 2,000 to clients and 300 to marketing. A variation of this is to split the marketing time half and half, in which the attorney is assigned 300 marketing hours, but allowed to reduce the billable budget by 150 hours.
TRUE COST OF STAFF AND ATTORNEYS
Timekeepers (attorneys and staff) can use any of these methods. To calculate cost for non-timekeepers, it is most correct to use the base salary and divide it by 2,100, which represents the generally accepted number of hours a person is employed during the year. (When vacations, holidays, and sick days are taken into account, the actual number of working hours in a year for clerical and administrative staff is closer to 1,500). A $45,000-a-year administrative person costs $21.42 per hour. A $25,000-a-year secretary costs $11.90 per hour.
