How Much Should Lawyers Spend On Marketing?
How Much Should Lawyers Spend On Marketing?
Natalie: Hi everyone.
Sasha: Hey, this is Sasha Berson.
Natalie: My name is Natalie and today the question that we received … we usually get this question often. How much should I spend on marketing, and why the budget that you are suggesting is the appropriate budget for me?
Sasha: Alright, and this is what from industry?
Natalie: This is legal.
Sasha: Alright, so for an attorney, how much money as a percentage of total revenue should be spent on marketing? There are a couple of things we really need to think about. Number one is you should spend an adequate amount that will get you to the objectives that you have. So for example, right now, as we’re recording this, this is the end of 2018. And I’m going to use hypotheticals, right? So, let’s say that your firm generates one million dollars in gross revenue by the end of 2018 and your goal for 2019 is to up it to 1.5 million dollars. How much should you invest in growth?
Sasha: Let’s say that today, you do zero marketing. And now you are aiming to add another $500,000.00 in revenue, what should you invest to get there? It’s fairly simple. When you think about marketing, it’s an investment. If it works right, it delivers a result. For legal clients, we usually propose to spend anywhere between 7 and 10% or invest 7 to 10% into future growth. So, if you’re looking to grow by $500,000.00, you should be aiming to spend anywhere between $35,000.00 to $50,000.00 a year to get that growth.
Sasha: Now, why is that amount? Should you spend too little, you will usually not get the result that you need. Should you spend too much, you may actually overshoot, and actually bring in more business than your capacity can sustain. And growing uncontrollably fast could be incredibly detrimental to the business because now you will have issues with turnover because your employees will be overburdened … clients that are underserved, so they will be posting bad reviews on Ava or Yelp or Google, you obviously do not want that.
Sasha: So you want to be just right. Now how do you allocate this budget? There are actually a couple of things that you always need to think about when you think about your marketing budget. Number one, you want to allocate some portion of the budget, and that portion is usually small, much, much smaller than the rest of it toward reminding your former clients about your existence. Why does that matter? It’s because, at some point, they will probably have some referrals for you. And if they don’t remember your name, your phone number, your firm’s name, guess what, chances are they will not know how to refer you.
Natalie: Like yesterday, we spoke to a prospective client and they were saying that they were getting a lot of their new cases from previous clients, clients that worked with them in the past, but they moved to another role or a different company. So this always good to remind them of your existence.
Sasha: Absolutely, you want to remind them. And here’s how you break your budget into two parts. One is to communicate with former clients and referral sources, and another much larger chunk, to attract new clients. Historically speaking, statistically we know that it is seven times less expensive to retain an existing client than it is to attract a new one. So your ratio should be about seven to one. So for every seven bucks that you spend attracting new clients, spend a dollar on maintaining the relationship with existing clients.
Sasha: Now, when I started off, I started saying that you should be spending 7 and 10% of future revenue. Let’s focus on the round number, and say it’s 10%. And a lot of attorneys will say, “$50,000.00 to invest to get new business is a lot of money.” But this is a wrong way of thinking. This is an investment. So, if you could put money in a bank, if you could put $50,000.00 in a bank, and at the year’s end, or whatever a reasonable timeline is, you could pull out $500,00.00, would you invest that money? Without a doubt.
Sasha: It is the same thing with high-performance marketing. And the focus should be on high-performance marketing because there are a lot of bad players in the marketing industry that will do marketing but will not deliver results. And this is where you also have to apply logic. Am I spending enough, to get enough results? There are some players that will charge 500 bucks a month and say they will do digital marketing for you. How much talent can you actually buy for 500 dollars a month? Probably not much, probably none at all, because it’s just too little of a spend.
Sasha: If you are considering substantially growing, you should be investing a lot more because this is when you can get serious firepower. And the way I think about bringing on vendors or employees, I always want the best. And the best, usually initially cost a lot, but at the end of the day, they’re always free because they deliver much better results, much better outcomes, a much higher return than what you put into them. Whereas mediocre people, mediocre vendors, usually cost you a lot more because there is the money that you pay them and then there is the opportunity cost that comes on top of that. So if you spend 500 bucks a month on new marketing, and it runs you $6,000.00 a year, and you get no new clients or you get a couple new clients, that $6,000.00 is a lot more expensive than $50,000.00, if for the $50,000.00 you get one hundred new clients. So, there is that opportunity cost.
Sasha: So, always invest right. Always ask a marketing agency that you’re about to hire the right questions. And I know there is another video that we shot about the questions that need to be asked of a marketing agency. So, we’ll refer to that in the link below.
Natalie: So what’s interesting, when we need to stress out, when you come to an agency or you’re thinking that you’re thinking that you need to spend few thousand, few hundred dollars on marketing, and sometimes we do get clients who come and say, “Okay, I am ready to spend $2,000.00 a month. Let’s go and let’s do some marketing.”, which is not the right way of thinking about this right?
Natalie: You always need to tie in the goal, what are you trying to accomplish and how many results are you going to get out of this $2,000.00, $3,000.00?
Sasha: Yes, one hundred percent. And this is a common theme. Yesterday we had a discovery workshop with a midsize law firm, shouldn’t call them midsize, they’re 16 employees all in all. Eight of whom are attorneys. And they’ve been in business for a very, very long time. And throughout the discovery process, what we understood about them is they’re in the business of practicing law and they’re running their business as a law practice, rather than a business. And the attorneys that are on staff there have been practicing law for 30 years, and they’re incredibly good. They solve incredibly complex business challenges. And they could have grown a lot larger and retired with a lot more money, except that they won’t, for the reason that they have always approached their business as a law practice, rather than a business.
Natalie: Explain a little bit what you mean.
Sasha: So they never focused on running the business as a business. So they always focused on the thing that they have done for the clients, and they have done incredibly well.
Natalie: And they love doing it.
Sasha: And they love doing it. But they don’t love the outcome because now the founders are getting somewhat close to retirement age, and now they’re thinking, “Where is this thing going to take us in the next five years?” They didn’t have this conversation with us, but I know that if I were in their shoes, I would probably think, “Do I have enough money saved up for a comfortable retirement or not?”
Sasha: Because they have always focused on doing the thing that they did. So I asked them, “Well, what is your revenue today, and where do you hope to be next year and five years from now?” And they couldn’t answer that question because they don’t think about their law firm in terms of business, but rather as law practice. So, I always think about it in terms of business. Where are you today, where do you need to be a year from now, five years from now, ten years from now? And how to formulaically get you there, because marketing and sales are very, very formulaic. And by the way, if you hate the word sales, and you probably do, always replace it with the word help, because sales are nothing, but marketing brings you a prospect and you talk to them and answer their questions. And you ask them questions, and they answer your questions. And in the spectrum of that conversation, you learn if you’re a good fit for them, and they learn if they’re a good fit for you.
Sasha: And this is the sales process in a nutshell. It’s just two parties deciding on whether they’re right for each other. That’s it, there is no BS that needs to be in that process. You don’t have to sell anyone, to hype up anything. You’re just communicating so both parties can decide whether this is a good fit.
Sasha: So, running a law firm as a business is very different than running a law firm as a practice. And I think we should shoot a different video about that, because this is a much longer conversation, right?
Natalie: Agree. So to finalize, how much should I spend on marketing? What would be your short answer?
Sasha: So, a short answer is you’re always aiming 6-7% of the growth that you’re looking to achieve, with one huge caveat. If the growth you’re looking to achieve is $100,000.00 and you think that you could get away with $7,000.00-$10,000.00 a year, that is probably not going to work because there is such a thing as simply investing too little. You do need to have certain firepower to get certain results. If you invest a minimal amount of effort or a minimal amount of money, it’s simply not going to work. What is that threshold? I can’t tell you scientifically, but if you’re not spending at least $2,500.00-$3,000.00 a month, depending on where you’re located in the country, how competitive your market is, there are always competitors that are going to simply outspend you, and you’re not going to show up where you need to show up. Which for most of you is going to be Google, and we talked about it extensively in a few episodes before. And if you do not show up, you really don’t need to spend the money, because the magic is not going to happen for you.
Sasha: And by the way, the same thing applies to most other businesses. This is not just for law firms. You need to make sure that you’re investing on par or better than some of your competitors to get the business that you need because it’s a very, very competitive game. And if you’re underspending, your competitors are simply going to beat you day after day after day after day. And then you’re left with the crumbs that they’re going to come off their table. And you don’t want that.
Natalie: And if you’d like to know how much your competitors are spending, you can always just ask us, and we’ll be happy to show you. We do have a lot of tools that we can check.
Sasha: Yes, that’s absolutely true. So analytics are there to tell us that Firm A, Firm B, and Firm C spend x, y, and z, and here’s how they do it, and here’s where they are. And you’ll know your more successful competitors and we can tell you what it is they do and how to beat them at their own game. So, it’s very sophisticated. I think this should be a wrap, it’s taken a little while.
Natalie: Yes, thanks.
Sasha: Bye, thanks for watching.