As law firms of all sizes begin developing business plans and budgets for 2015, managing partners, COOs and CMOs would be wise to adopt seven key management and marketing concepts that are crucial for success.
Most of these tools have been used for years in the planning process of businesses – even in other professional services such as accounting, engineering, and management consulting. Yet, somehow, they have not made their way into standard practices at most law firms.
The question is: Why?
As law firms business model continues to come under mounting pressure, factoring in these concepts are increasingly important to help to ensure continued financial success.
Reassess the business model to fit client needs.
A disturbing number of firms still are run today the way barristers and solicitors managed “chambers” in the 19th century. Yet many lawyers and law firms act as if nothing much has changed in the last 200+ years – including the aftershocks of the Lesser Depression that rocked their clients and the firms themselves in 2008.
It seems as if law has resisted change forever. It is easy to forget that many firms stuck stubbornly to what BusinessWeek calls “medieval” partner compensation structures based on either lockstep or “eat what you kill” well into the late-1990s and even the 2000s. Most of the holdouts changed, if reluctantly, to a more equitable distribution system only after younger partners – who, often, were billing the bulk of the hours and bringing in much of the new work – either threatened open revolt or just quietly moved to firms where distribution was based on a partner’s overall contribution to the organization and its future.
Yet with clients putting unprecedented pressure on firms of all sizes to control fees and even smaller firms growing to be respectable $10-$20-million-sized businesses, far too many lawyers continue to resist the next wave of change washing over the profession based on what clients say they want: Fees that are fixed in advance for a specific mandate; fees based at least in part on the success of a complex piece of “bet the company” litigation or a high-value deal; or fees based on pushing work on a file to the lowest practical level of associate or clerk.
Perversely, according to a survey of 227 firms in 13 countries conducted by law software provider Aderant, despite mounting client pressure for fixed fee billings nearly half of the respondents are spending more money on systems that capture only time. As a result, most alternative billing structures are simply “billable hours in drag,” stated John Chisholm, a former managing partner of one of Australia’s largest firms.
Granted, not every client wants to abandon hourly billing. But as a growing number of businesses grapple with controlling the cost of outside counsel, lawyers have to start finding more nuanced ways of charging for services. As accounting firms learned after the re-regulation of Sarbanes-Oxley, one key to financial happiness was found in value billing.
In other words, how much value is there in the legal advice provided, and how much does it help the client’s business? If it increases the client’s business by, say, 50 percent, it should be priced accordingly.
Focus on the lifetime value of clients by tracking their profitability.
Most B2B and B2C companies calculate the lifetime value of its customers and clients on a regular – usually weekly or monthly – basis because they need to know where to be concentrating efforts.
Typically in law firms, studying profitability means reviewing hourly rates and realization ratios – what percentage of invoices are collected in 30, 60 and 90 days. But there is much more to client profitability. Yes, every firm knows which are its “best” clients, those on the “Top 10” or “Top 20” list because the ratings are based on fees billed. What few firms actually know is which clients offer the highest growth potential long-term, both in terms of fees and profitability, and this measure is far more critical.
Smart firms should conduct an exercise to tier their client base into four categories, allowing them to focus business development time and dollars on those offering the greatest opportunity:
- Most Valuable/High Profit Clients
- High Growth/Much Greater Profit Potential
- Low Growth/Little Higher Profit Potential
- No Growth/No Higher Profit Potential
There is an efficient and effective way of doing this and the exercise provides a holistic picture of which clients – even types of clients – are profitable and worth developing, which are not. Firm could increase its business and improve its net return without setting off internal divisions, squabbling or angry departures. This happens when a firm focuses on the lifetime value of clients.
A parallel exercise will determine which prospects truly offer potential of new work, and which ones do not.
Nurture leads until a prospective client wants to buy, not when you want to sell.
Perhaps 10 percent of lawyers are truly adept at business development; the other 90 percent seem to be divided between those who try to generate new client work but don’t do a very good job and those who, for whatever reason, do not even make the effort.
But what even some savvy rainmakers do is try to “push” a sale before the client is ready to hand over a file.
Regardless of what someone is buying, they have their own timeline and what they are going to consider before making a decision. In other businesses, it’s called the “sales cycle” and the prospective client gets to decide its length. Unless a client or prospect has just been served papers, chances are their cycle is not the same as yours.
The key is to use the time before a decision is made to create a dialogue with the client on their own terms by offering serious content for them to study on their own. This means you need some idea of who your prospect is by reading their company website, using Google to learn about the industry and the company, checking archives at the local newspaper and business magazines for background. Then use this information to send information that might be useful to the prospect.
We’ve worked with lawyers who have had tremendous success generating business by sending a short email with a link to an article and a note saying only, “Not sure if you saw this but I thought you might find it interesting.” Think of it as the “FYI Marketing.”
It won’t speed up a client’s buying cycle but it will keep you and your expertise at the prospect’s top of mind for when they do need a lawyer. Moreover, by engaging the prospect on an on-going basis you’re positioning yourself as someone who cares about the client’s needs, not bringing in a new file. According to a recent survey by Marketing Sherpa, in an average situation, 60 percent of law firms experience a sales cycle of longer than 3 months.
Of course, the length of the sales cycle, coupled with the imprecise art of knowing when the client will actually buy means one important thing for all law firms: In reality, you need a lot more leads than you may believe are actually necessary.
Collect metrics that matter.
It is flattering to get “friends” on Facebook, “likes” for LinkedIn updates or re-tweets on Twitter; some firms track and report this data ferociously as if every thumbs up means a new client will walk through the door tomorrow.
While metrics are important to track, too often the wrong metrics are being measured which means no meaningful information is being gleaned that can be turned into an actionable direction.
By measuring results, it becomes possible to repeat and improve what is working and discard what doesn’t. After all, as Einstein put it, insanity is doing the same thing over and over and expecting different results. But without measuring the right metrics, law marketing management may continue to do the same thing and wonder why the results aren’t better.
So what should be measured, if “friends,” “followers” and “likes” by themselves mean very little?
For one, look at how many tweets with a link to something on your website get clicked. Are people reading what you’re writing and posting? If the number is low, think about changing what you tweet and blog about.
A key measurement too few firms track is how their social media posts are shared. Getting clients engaged in a particular issue encourages them to share it with their colleagues and contacts which comes in handy when there are links inside the message. It provides a chance to introduce yourself to a group of people who then go onto share it and your message will get distributed far beyond your firm’s own list of followers. In the world of social media, a soft approach goes a long way to building a solid online marketing strategy.
Internal metrics should be measured, as well. For instance, US “BigLaw” firm Bryan Cave now has a dashboard called the “Octagon” tracking eight different metrics. It captures the data needed for lawyers to know precisely where they are financially in a client file, providing them with real-time insight. This is especially critical as firms get nudged and pushed into flat fee and other alternative billing arrangements.
Stress online marketing strategies.
Other than an occasional profile ad in very targeted trade publications – “planting the flag” to remind clients and targets that a firm is part of the industry – most of off-line marketing has become as irrelevant to business law firms as buggy whips are to NASCAR drivers.
(For consumer lawyers, especially those handling personal injury suits, “old” media still have a place because their firm needs to stay top-of-mind since no one knows – including the victim – when somebody will be in an accident or get hurt at work. For this, TV, radio and newspaper do incredibly well, but they do even better if augmented by online strategies including Facebook, Twitter and other social media. This category is called Social Media Marketing or SEM.)
Too many firms think in terms of “digital marketing.” Instead, they should be thinking of marketing in a digital world. As a result, digital marketing remains a huge challenge for law firms. For starters, they need to recognize that just as creating a litigation strategy is a first step in a lawsuit, a digital marketing strategy is required before the first bunch of tweets are distributed. Yet it is obvious from reviewing everything from Twitter accounts to LinkedIn and Facebook pages of both firms and lawyers that little, if any, thought has gone into creating a strategy for using social media.
Nor does it appear that many firms have developed a content strategy for a unique medium, which is what social media actually is. Most firms are basically putting up the same material online as they did when printing newsletters, merely posting articles on the Web rather than sending it to a printer.
In fact, smart content creation should be pegged to the digital channel being used. The single biggest challenge that marketers will need to solve is how to scale content that both makes sense and is relevant to the audience the firm is trying to reach.
Execute highly-optimized, multi-channel campaigns.
“Stop and start” marketing never works yet many law firms still insist on trying this or that for a while and when there aren’t immediate results, move on to something else. Worse, from an effectiveness standpoint, the lack of a consistent, integrated, multi-tiered marketing plan where each element carries its own benefits as well as supports all of the others means that money is simply being wasted.
Especially today, with multiple marketing channels, it is crucial to leverage blogs, email, Web and social media under a highly optimized campaign so all of the pieces work together, supporting an overall objective. A coordinated strategy is especially integral in an era where online marketing is increasingly prevalent and is playing a larger role for building profile, establishing awareness and engaging clients.
Increase marketing budgets in tough times.
When an economy is flat or growing very slowly, every business looks for ways to cut costs and law firms are no exception. Tactics ranging from laying off lawyers and staff to salary freezes to eliminating free coffee in the lounge all are commonplace. So, too, is taking an axe to marketing and business development budgets. This is actually the worst way to save money. To be clear, marketing is about generating leads, qualifying them, and converting them to paying clients. Marketing is how you get new clients.
Countless studies over the years, dating back to the first Great Depression in the 1930s, show repeatedly that businesses, including law firms, which make the smart – if counterintuitive – move to maintain or even increase marketing budgets in hard times not only come through the downturn in better shape than their competitors but also bounce back faster and do much better than their competitors once a strong recovery is underway. A good rule of thumb is that all marketing is cumulative and it takes months and years to get critical mass. If you cut your marketing efforts short, you probably won’t notice the dwindling leads — until it is too late. Trying to ramp up the marketing machine again then proves to be a monumental effort.
This is a vital lesson to remember as 2015 is predicted to look a bit like 2009 and ‘10, with an economic flattening – if not outright slowdown – in Canada, the US, Europe and industrialized parts of Asia. Any law firm that wants to leap ahead of competitors in any coming economic flattening will resist the temptation to cut what many lawyers see as a discretionary expense, instead maintaining or even increasing its budget – provided it is spent strategically, consistently and with a purpose.
Lean Law Or Smart Law?
There is a lot of talk about “lean law” and what it means. Much of the discussion focuses on having fewer lawyers in firms, increasingly hourly billings, coping with downward pressure on rates and adopting innovative fee strategies.
What it should mean is practicing smarter law. A combination of the advent of online marketing and tools such as SEO, and rapidly changing client needs and expectations means that firms have to rethink the entire way they are managed and run, and then sell themselves to retain current clients and attract new ones. Answers are being sought – but sometimes the wrong questions are being asked.
Many will find answers to the right questions are not as painful as laying off staff and associates, or firing partners, if they simply begin adopting and sticking with seven key and well-established management and marketing concepts that their clients have been using for decades.
For more on legal marketing news, go here.
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