RANCHO PALOS VERDES, Calif. — This week’s 25th Annual Marketing Partner Forum, kicked off its session on the 2018 Annual Marketing Partner Forum Survey with a deep dive into some uncomfortable truths and even some silver linings that may be buried in the legal market data that shows demand for legal services and the revenue it generates has largely stagnated since the Great Recession in 2011.
Citing the recent 2018 Report on the State of the Legal Market, Steven R. Petrie, Chief Strategy Officer at Faegre Baker Daniels, showed that although the numbers look unchanged, year to year, there is really a lot going on if you dig into the demand growth and realization rates, and break things down by segment — AmLaw 100, AmLaw Second 100, and Midsize firms.
For instance, while the average growth in demand for law firm services has remained relatively flat since 2010, hovering just slightly above or below 0%; if you break that out into segments, you can see much stronger demand growth has been enjoyed by the AmLaw 100 firms and much weaker growth by the AmLaw Second 100, while Midsize firms sort of followed the average trendline.
“You see a very large dispersion of performance and greater volatility between the segments,” said Petrie. “The average might look like a flat trend line, but you really have to examine what is going on below the surface.”
Revenue tells a similar story, Petrie noted, adding that about 25% of revenue in the AmLaw 100 is generated by the top nine law firms and another 25% is generated by the bottom 50 firms. “It gets to a be story of the haves and the have-nots.”
Of course, the news wasn’t always good for the larger firms. If you look at the spread between the standard rates that law firms charge for legal work and how much they actually collect in payment, the spread is much larger and increasing for AmLaw 100 firms, falling to historic lows last year.
Petrie pointed out that this deep-dive into the numbers below the averages are important, especially in regard to larger industry issues of dramatic change and strategic realignment. “It’s important that you get beneath the averages and see what’s really happening at your firm and in your practice,” he said, adding without that effort, change will be slow coming to an industry that can ill afford further delay. “Outdated strategies are futile in the face of an altered playbook,” he explained. “And it’s a very challenging task to change an industry that’s so rooted in its traditional behavior.”
The Marketing & Business Development Solution
There are, of course, ways to rise to that challenge and hopefully break from the lower-than-desirable averages for demand growth and revenue. As one suggestion, Petrie cited another Thomson Reuters report, the 2017 Dynamic Law Firms Study, which showed that those law firms that invest in business development and technology demonstrate superior performance compared to firms that hold off on such investment.
That’s why investment in and attention to marketing and business development strategies within a firm is such a vital component to that firm’s success or failure, said Silvia L. Coulter, Principal at LawVision Group. She cited the survey results that showed 22% of respondents — more than twice the percentage from last year’s survey — that said their Marketing and Business Development units were structurally distinct departments, an encouraging sign that a firm better recognizes the importance of having a separate business development initiative that is client-focused, rather than grouping it with the general marketing of the firm. (The online survey was conducted in November/December 2017 and included responses from marketing and business development leaders at medium- and large-size law firms.)
Less encouraging, however, was the survey results that showed the average percentage of firm gross revenue spent on Marketing and Business Development was 2.2%, down from 2.5% in last year’s survey. However, more of those surveyed said they expected their budgets for 2018 to increase, with 52% saying they were expecting an increase of up to 10% or more, compared to 35% saying that last year.
Another one of those silver linings in the survey was the dramatic fall in the percentage of respondents citing the lack of lawyer engagement as the primary challenge facing by their firms’ business development activities. Last year, almost half of respondents cited this reason, compared to 26% in this year’s survey.
“So much of this comes back to lawyer engagement in the business development and marketing process,” Coulter said. “It’s important to ask yourself what you can be doing as a business development or marketing professional at your firm to promote further lawyer engagement, since so much depends on that.”