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How Big Do Marketing Budgets Need to Be? Alexander Gendlin in LTO.DE


An analyses by Law Business Managing Partner Alexander Gendlin in LTO.DE. Klick on this link or the lto logo below for the original article in German or read our translation below.

How Big Do Mar­ke­ting­ Bud­gets Need to Be?

By Alexander Gendlin

Law firm managers often wonder how much money they should be spending on marketing. Why that money is generally not distributed optimally, why one ad per year isn’t worth it and what criteria you should use to decide, is explained here by Alexander Gendlin.

Are you one of those law firm partners, who year upon year is regularly inundated with constant comprehensive matters without any marketing activities? And are you sure that these sources will never run dry? Then you can stop reading this article with a clear conscience. For all others there is one question that keeps arising: Am I spending too much or too little on my marketing measures?

Basically, there are four different approaches that can be observed in law firms for calculating marketing budgets. Marketing in this context encompasses business development, advertising and public relations.

One ad per year? Forget about it!

On the one hand there is the “subjective expense” method: In this case the law firm simply asks: “How much money can I afford to spend on marketing?” Mostly small law firms use this method, and it has a great advantage: It takes little time. The disadvantage: It is a pure waste of money and time and doesn’t even show any effect in the medium term. After all, the market cares little, how much a law firm can afford.

With that approach the result tends to be the famous advertisement that is run once a year or a Google AdWords campaign, in which you bet a minimal amount with a high degree of spiritual confidence on “lawyer” or “lawyer in the XY law field”.

Before you use that kind of approach, I recommend just skipping it all together. If it has any effect at all, it is extremely slight. The money spent is guaranteed not to result in any new acquisitions.

The shotgun method ignores market cycles

The “revenue percentage” method is also very popular. In this case a specific percentage of the actual or future law firm revenue is set aside for marketing expenses. In the legal field this percentage is rather low, by the way, with 1 to 4.5 percent, even if it is increasing. In comparison, the cosmetics industry, for example, spends considerably more on marketing with 40 to 45 percent of their revenue.

Cosmetics products can, of course, be compared with one another much easier and therefore require much more marketing emotionalizing in order to differentiate themselves. Nevertheless, the marketing expenditures of law firms are still much too low in comparison.

The advantages of the revenue percentage method are a certain continuity of expenditures, a satisfied Chief Financial Officer and a certain relativity with respect to the competition. In addition, you shouldn’t forget about the positive effect that forces the law firm’s management to actively consider the question as to what to do about marketing.

The significant disadvantage of the shotgun approach though is that there is no differentiation between the individual legal fields and the market and product cycles are ignored to the full extent. For example, in a saturated market a significantly greater budget is needed for advertising legal services that have been available for a long time already but only produce stagnating revenue than for launching new legal services in a fledgling market. In a fledgling market, there are fewer competitors that you have to compete against with marketing in order to attract the attention of the clients and multipliers.

Do what everyone else is doing?

Next, the “me too” method should be mentioned, which is very similar to the revenue percentage method. In “me too” the cunning marketer simply adopts the competition’s budget. So everyone is copying each other, and you can only hope that at least one of them has done their due diligence. This method usually causes unnecessary costs since except for a few exceptions no law firm offers exactly the same services as the others.

While it might make sense, for example, for a law firm with a focus on M&A and capital markets to invest in expensive advertisements, it might make less sense for an equally large law firm specializing in tax law. Even one-person law firms that work in the same legal field have different strengths and cannot be overlayed with 100 percent coverage.

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