The legal industry, from law firms to solo practitioners, is one of the most competitive in North America and around the globe. Competitive edges for law firms come in various forms, from customer service, quality of work product, managerial accounting and marketing strategy to name a few. Marketing tends to be one of the bottlenecks many firms face when looking to grow their revenue and caseload.
How much do law firms budget for marketing? On average, law firms budget and invest between 2 – 10% of their firm’s revenue into marketing and advertising. What percentage of their revenue is spent on marketing relies on intrinsic factors of their practice including size, areas of law and marketing strategy.
There are other factors that influence the amount of their budget spent on advertising and marketing activities as well. In this article, we’ll look at how much is spent by firms of different sizes, areas of law as well as in what types of marketing they spend money on. We’ll also briefly discuss why the spend changes with marketing strategy and areas of law.
How Much do Law Firms Budget for Marketing?
While it does depend on the law firm and nature of its business model, one of the largest expenses you can expect to see is marketing and advertising. This will depend on how certain factors such as:
- Areas of Practice
- Size of the Law Firm
- Firm’s Desire & Aggression in Client Acquisition
- Cost per Client Acquisition
- Effectiveness of Marketing Channels
- Types of Marketing Activities & Overall Strategy
- Time Investment into Marketing
We’ll look at how these factors distill into different classes of legal practices as well as reasons why firms spend more or less on marketing and client acquisition.
Consumer-Facing vs Business and Corporate Law Firms
The first comparison we’ll look at is consumer-facing areas of practice versus law firms focusing on business and corporate legal clients.
Firms and solo practitioners that focus on consumer-facing areas of law includes everything from family law, estate planning, real estate, criminal defense, personal injury and other areas of practice. In other words, these are all areas of practice and services offered that handle cases for individuals rather than companies and corporations. All else being equal, these areas of practice tend to spend approximately 10% of firm revenue on ads and marketing activities.
Family, Property, Wills & Estates
Some areas of law, like estate planning, real estate and family law tend can tend to spend less on marketing due to the nature of these areas of law and their sources for client acquisition. These areas of practice tend to do very well, generating new clients and cases from referrals and hence require less expenditures on marketing.
Personal Injury & Criminal Law
Firms that focus or specialize in areas of law such as personal injury (or civil litigation), criminal defense, immigration and others tend to spend 10% or higher on marketing. Referrals are still common in these areas of practice, however less so (generally) than the former mentioned practice areas. It’s generally more difficult to find highly effective, cheaper marketing mediums than other areas of law. Both cost per lead and client acquisition tend to be high in these areas of law. Generating enough leads can be costly as well as qualifying these leads and converting them into clients.
Some personal injury firms, that tend to be very successful, spend as much as 20% of their revenue on marketing and advertising. In situations like this, a firm may have the strategy of paying more to acquire a higher volume of cases, knowing that many personal injury cases will generate good margins. However, their long-term strategy is a number’s game. Paying to acquire as many cases as possible to pay the bills, salaries and keep the lights on, while waiting for a few large cases that will generate huge fees and produce the real profits for the practice.
How the Size of the Firm Impacts Marketing Spend
Many times the size and maturity (how long it’s been in business) play vital roles on the amount of marketing spend and budgeting. It’s been reported that the AM Law 200 firms spend 2% of gross revenues on marketing expenditures, whereas medium to large-sized law firms spend anywhere between 2-5% of fee-based revenue on marketing and advertising.
Smaller law firms tend to spend between 5-10% on their marketing, again depending upon their marketing strategy, areas of practice as well as how well their intake and sales processes are dialled in.
How do Law Firms Spend Their Marketing Budget?
We’ve now briefly discussed how much law firms spend based on their practice’s size and area of law they serve. However, you may be wondering how firms divide their marketing budget between different expenditures and activities.
How to Budget for Online Marketing and Advertising?
Some sources report 65% of law firms spend the majority of their budget on online advertising and digital marketing. Over 25% of respondents in the same survey said that they spend between 51-75% of their total budget online while nearly 40% reported spending between 76-100% of their budget was spent on internet marketing.
If you’re firm isn’t investing heavily with online marketing, you may be surprised to hear that over 78% of law firms that participated in the same study said that online marketing accounted for their top performing advertising channels.
It’s unclear to us how accurate these numbers are based on this study, since the study also claims that lead generation services account for the best performing mediums. While this seems to us to indicate a biased market sample, we have found supporting evidence in our own studies that law firms investing in content marketing and SEO do generate vastly more online traffic and leads then ones that do not.
How Should Law Firms Budget for Internet Marketing?
As our society’s attention shifts more towards more high-tech mediums and forms of entertainment (thanks to the likes of social media, YouTube, Netflix and so on), there will be a growing demand for companies across all industries, including law firms and legal services, to invest more of their advertising budgets in online and digital marketing.
Each law firm will have its own marketing objectives and needs. However, there are some general budgeting principles for online marketing to be cognizant of. Marketing, generally works and can be explained by physics principles such as momentum and inertia. Marketing can take time to pay off and therefore, when your firm’s budget permits, there are several stages of your law firm marketing funnel that require adequate investment.
Conversions: 40 – 70% of Budget
Campaigns can see immediate results and effects, however there are residual and snowballing effects. This is due to a portion of people being ‘ready to buy’, in other words, needing a lawyer’s services immediately. This is represented by the lower segment of the funnel, called ‘conversions’. The objective of this is to drive phone calls and contact form submissions. The idea of this audience is to use SEO and search engine marketing (SEM) ads focused around searchers demonstrating a high degree of ‘purchase intent’ to drive new leads and phone calls.
You can think of this as sales, where you want to invest advertising dollars into channels that perform reliably and that consistently generate new leads and cases. Approximately half to two thirds of your budget should be spent on this, due to its reliability and steady flow of new business.
Consideration: 20 – 50% of Budget
Above that, in the consideration segment of the funnel are people that will need services in the near future, but may be doing research about their case or shopping around for the right attorney to handle their legal matter. The overall goal is to create a closer touchpoint, where the audience gets to engage with your brand – usually accomplished by having them visit your law firm’s website. This can be driven by a number of different forms of marketing, but generally can be accomplished with targeted PPC ads or content marketing such as blogging to attract your ideal legal clients.
Awareness: ~10% of Budget
The top level, known as awareness segment can be thought of as where you want to perform your top of mind advertising. This can be invested in displaying larger spread campaigns with lower direct impact, such as posting on Facebook or YouTube, using simple geo-targeted display ads and other awareness marketing campaigns.
Approach to your Firm’s Marketing Budgeting
As you move down the funnel towards more conversions, phone calls and signing up new clients, you’ll spend more of your marketing budget on tried and true techniques and strategies you know deliver well for your law firm. Moving up the funnel, you spend less of the total budget. However, you should leave open the budget for experimentation. Trying to campaigns or approaches to different marketing channels to see if you can find anything that generates better results in each segment of your law firm’s marketing funnel.
This is important as techniques will change over time. Many firms used to budget heavily on advertising on billboards, phone books and TV ads. Now that is shifting online. Things will continue to change and experimenting with your practice’s marketing budget will ensure you stay ahead (or at least inline) of the curve.
How Much Time do Lawyers Spend Managing their Marketing?
When considering how much your practice spends on marketing, another thing to be cognizant of, is how much time you need to invest in marketing your firm or at least managing the marketing.
When you’re a vested partner or driven associated for a small, business and corporate law firm, around 15-20% of your time can be taken up with marketing and business development activities. Other sources and areas of law report more. Some lawyers and managing partner focus primarily on marketing and operations rather than actually practicing the law.
How can Practices Reduce Their Marketing Spend?
There are a number of ways to investigate how law firms can reduce their marketing spend. This requires inspecting the entire client acquisition process, from the channels used for marketing and advertising to the time they sign an engagement letter and / or retainer agreement.
Your Involvement with Marketing Activities
The amount of time you spend either marketing, networking or managing these activities from a higher level, at the least, can have a significant impact on your results. For instance, an immigration lawyer can invest heavily into marketing and advertising. With the right marketing partners, can see an abundance of leads and determine steady streams for leads as well as reliably measure fiscal metrics such as their cost per case and lead acquisition.
The same immigration lawyer, investing more time to promote and market their firm first-hand could dramatically reduce the cost per lead by hosting live Q&A video streams or calls on Facebook or YouTube, effectively running a webinar. They could also network with other immigration attorneys and practitioners in other areas of law to build and develop their referral sources. The trade-off is between cost per lead in addition to volume of new clients and the amount of billable or revenue generating hours they spend on case work.
The different marketing channels you invest in, online and offline should be set up in such as way that you can measure the performance of each channel accurately. Generally, it’s best to invest in advertising and marketing where you can measure the direct result of your investment and efforts. Above all other metrics, there are 3 that you’ll want to focus on measuring the most stringently:
- Cost per Lead (or Client) Acquisition
- Quantity and Quality of Leads
- Consistency of Leads
Cost of Lead Acquisition
From each channel, you should be able to measure how much you have to spend to acquire a new lead. This way, instead of thinking about all the details that go into running a marketing campaign, you can distill it down to how much it costs to purchase a new lead or client, whether it be from TV ads or Google AdWords for your firm.
Quantity and Quality of Leads
Next is measuring how many leads the channel or source generates for your practice on a monthly basis.
More importantly, what is the quality and average case value of the leads. If your cost per lead acquisition for one channel is lower and it generates more leads, then on the surface, that seems to be quite excellent news. However, if on average, you’re able to convert 1 out of 5 leads into a client and this marketing effort requires 10 leads to generate a client, then something seems to be wrong. Before dismissing this as a poor channel or source for revenue generation, there are several aspects to consider.
First, if it’s still generating new clients and files at reasonable case values and the cost per client acquisition is performing approximately at or above par, then this is still a good source.
The second consideration to keep in mind is if your approach to that marketing channel is the best it could be. In terms of TV, banner or Facebook ads, ensuring that your messaging is accurate. In terms of search engine marketing like SEO or AdWords, investigate if you’re targeting the right keywords for your focus areas of practice.
Consistency of Leads
The final property to measure from different lead sources is consistency. If you could go to Walmart and save 15% on your groceries, that’s great. However if they don’t stock some of your essentials items on a weekly basis, then this produces problems and nuisances – having to shop at multiple stores.
The same is true for lead and case generation for legal marketing. If a channel is performing very well in terms of low cost per case at some points in the year, but suffers from seasonality that works against your favor at other times, then not only does that hurt your overall cost metrics, but worse can leave you high and dry when it comes to signing up some badly needed new clients for your firm.
Consistency can’t be underestimated. If you have to pay a higher premium, but can rely on going back to that source year round and open new files with predictability, then that added reliability should be accounted for and appreciated.
As bar societies are very strict with soliciting, it’s pretty common within the legal industry for lawyers to not associate any part of their practice with sales. However, almost every business in every industry deals with sales or has a sales process.
While your firm doesn’t have sales personnel, it does have a sales process and should take it seriously. If your firm’s marketing partners and agencies are generating a significant number of new leads for you every month, then you may need to investigate why your firm isn’t turning more of those into clients.
First contact is the first time a lead or prospective client talks to a staff member at the law firm. The first contact should be fast. According to Law Technology Today, law firms take 3 or more days to respond to initial messages from new leads and potential clients 42% of the time and 35% of instances, phone calls from leads aren’t answered.
If your firm falls into either of these 2 buckets, then you need to look at how your staff handles new leads. Many firms with tight sales processes use 24-hour phone answering services, specializing in talking to leads for law firms. Regardless of your appetite for using such a service, you need to consider how you’ll go about cleaning up the first contact with clients.
Whether you get a new message for a contact or lead form submitted through your website or a phone call with a voicemail from a potential client left after business hours, the follow-up is vital. Some people will try to call you back, but others are happy to call your competitors if they take customer service and their sales process more seriously.
In many cases, potential clients and leads may not pick up the phone or respond the first time you call, text or email them back. This doesn’t mean they don’t want to do business anymore, they’re probably simply preoccupied. Follow up with them multiple times, provided your state bar permits.
Measure your Close Rates
Not every phone call or lead that your practice receives will convert into a new client (if they do, then we would love to hear how you do it!). So measuring your close rate is pretty important. In general, it’s rare to see close rates of 1 in every 2 or 3 leads. It’s more common to be in the realm of 1 in 5 on average, with variance all the way down to 1 in 10 for different markets and areas of law.
The best way to know for sure what your firm’s close rate should be is to talk to other lawyers and firms in your market and area of practice, to get a better sense of what your firm should be striving to achieve. From there, you should look at your own close rates and determining how much work needs to be done – in your sales process – to improve this metric.