10 Factors to Consider When Setting Your Law Firm Marketing Budget

Most attorneys have no idea how much they should be spending on marketing their law firms. In trying to figure it out, many may just Google “law firm marketing budget” and find that, for example, the AM Law 200 firms spend approximately two percent of annual gross revenues. Most law firm management consultants recommend spending between two percent and five percent of gross revenues (more if you practice personal injury law).

While that may provide you with a general guideline, it really doesn’t do much to help you set a specific number for your individual firm. In fact, there are a number of factors you need to consider and use to guide you in setting your annual legal marketing budget.

But before we get into those specific factors, there are two critical things you need to keep in mind about marketing your firm:

Your market budget must support the goals of your firm. If you underfund your marketing, you will be less likely to achieve your overall business goals.

The purpose of legal marketing is lead generation. You are in business to make money. You make money by obtaining new clients. You get new clients from the leads you are able to generate.

That said, here are the 10 factors you need to consider when setting your law firm marketing budget:

  1. The kind of law you practice. If your practice is B2C -- personal injury, bankruptcy, family law, etc. -- you will typically need to spend more to generate leads from consumers. Typically, personal injury and litigation require significantly more investment in marketing.
  2. Your firm’s profit margins. The bigger your margins, the more you can afford to spend on marketing. While some practice areas like litigation have large profit margins, there are others that have traditionally low margins, like real estate and insurance law.
  3. Your firm’s gross annual revenues. The more successful you are, the more you can afford to spend to increase that level of success. It is not unusual for highly successful law firm to spend more than 15% of gross annual revenues on marketing.
  4. Your firm’s target market. If you market to consumers, you must spend more simply to get their attention. Some highly targeted practice areas may need to invest more in specialized marketing strategies to reach their target market. It is critical that you are able to define your target market as narrowly as possible to accurately gauge how much you will need to spend to reach them.
  5. Your geographical market area. If your practice is located in a densely populated urban area, your market area may be as little as five square miles. If it’s in a rural area, your market area may be up to 50 square miles.
  6. Your competitors. Are you competing with hundreds of other law firms that practice the same type of law that you do, or are there just a few? The more competitors you have in your market area, the more you will need to spend to compete against them for new clients.
  7. Your technology. Typically, firm that have invested in technology to streamline their business operations do not have to spend as much on marketing as less automated firms. Being able to automate marketing tasks like email marketing saves both time and money. If you can’t automate the process, you have to throw people at it, which is more expensive and time-consuming.
  8. Your sales cycle. Some practice areas like personal injury or criminal law generally have a short sales cycle -- someone is injured in a car accident or arrested and they need help right now. Other practice areas like estate planning or family law have a longer sales cycle, where the need to hire an attorney may not be so immediate. If your practice area is one with a long sales cycle, you will probably need to spend more on marketing to keep in touch with those prospects so you stay top-of-mind when they are finally ready to make their decision.
  9. Your average sale. Firms whose average clients spend more than a few thousand dollars with them will typically need to spend more time educating those high-dollar clients on the benefits of doing business with their firms. That education process means you need to spend more on marketing your firm to establish your credibility.
  10. Your average client’s lifetime value. If your average client spends $5,000 a month with you and stays with you for an average of five years, their lifetime value to you is $300,000. You can use this information to determine how much you can afford to spend in obtaining new clients before your profit margins begin to suffer. On the other had, if your average client is a “one and done” and never returns, you will have to use lower cost marketing strategies to obtain those clients and can budget accordingly.

Once you are able to calculate all these factors for your individual firm, you will have a good idea of how much you will need to allocate to fund a marketing plan for your law firm that will support your growth goals.

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