How to Establish a Law Firm Marketing Budget

This week's Memo includes a free resource to help you establish an annual marketing budget for your law firm.

TO:___Attorneys & Managing Partners
FROM:_Benji Albrecht, Founder and CEO of BPAgency
DATE: April 26, 2024
RE: How to Establish an Annual Marketing Budget

Effective budgeting is critical for law firms looking to improve their market share, attract high-quality clients, and achieve competitive advantage.

Unfortunately, many law firms struggle to create a marketing budget that aligns with their business development goals. This often results from a lack of specialized marketing knowledge within the legal sector and uncertainty about how to measure the true ROI of marketing efforts.

Misunderstanding Marketing's Role in Growing a Legal Practice

Many law firms see marketing as a secondary concern rather than a critical piece of business development and new client engagement. This perspective results in budgets that are misaligned with growth objectives. Other factors resulting in inadequate budgets include:

  1. Vague Marketing Objectives

  2. Misjudging Client Acquisition Costs

  3. Difficulty in Measuring Impact

  4. Resistance to Change

Despite these challenges, there is a way to budget effectively. This week’s Memo provides a step-by-step process for setting your annual marketing budget.

How to Set your Annual Marketing Budget

Step 1: Input Last Year's Revenue into the Spreadsheet

Input last year's total revenue into this spreadsheet. Last year’s revenue serves as the base for calculating your potential marketing budgets and the expected return on investment (ROI). Understanding how your past performance can influence future budgets is essential for strategic planning.

For example, a law firm with a revenue of $500,000 last year might decide to allocate 10% ($50,000) to their marketing budget. If this investment returns a 6X ROI, the marketing efforts would generate an additional $300,000 in revenue. Seeing such numbers in black and white can significantly influence budget decisions.

Step 2: Analyze Potential Budget and ROI Calculations

Once you've entered your revenue, the spreadsheet will calculate potential budgets based on percentages of your annual revenue. It’s crucial to review these numbers carefully. A common mistake is overlooking the ROI columns, which estimate how much revenue your marketing efforts are likely to generate, from 4X to 10X the marketing spend.

Many firms fail here by either setting their expectations too high without a realistic basis, or by underestimating the potential of a well-executed marketing strategy. To avoid this, examine each ROI scenario presented in the spreadsheet. Consider realistic outcomes based on your market, competition, and previous marketing successes or failures. This will help you choose a marketing budget that is not just aspirational but achievable.

Step 3: Decide on your Annual Marketing Budget

This decision should now feel less daunting, as you’ve grounded your choices in data and realistic ROI projections. This budget decision is your light at the end of the tunnel; it aligns your financial resources with your firm’s growth targets.

Consider a law firm that generated $500,000 revenue in 2023 and aims to grow to $800,000 in the upcoming year. To achieve this ambitious 60% growth target, the firm decides to invest 10% of their previous year's revenue, which amounts to $50,000, into their marketing efforts.

Using the spreadsheet tool, they can see different ROI scenarios; if their marketing strategy achieves an 8X return, this investment would generate an additional $400,000 in new revenue. To reach their overall growth target, the firm anticipates that the remaining $400,000 needed to hit $800,000 will come from repeat business from existing clients.

This approach—balancing new client acquisition through targeted marketing with nurturing existing client relationships—illustrates a strategic pathway to achieving significant revenue growth.

Credit to Gyi Tsakalakis who described the marketing spreadsheet I created on a recent episode of the Lunch Hour Legal Marketing Podcast. I encourage anyone interested in growing a law firm to listen and subscribe. (I was not compensated to say this. I just believe this is the best source of need-to-know information on the current state of legal marketing.)

This email is brought to you by Benji and the team at BPAgency.

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