Measuring the effectiveness of functional areas within law firms is growing more popular as managing costs to align strategy and value with legal spend becomes a key lever in capturing market share. In the grand scheme of things, most functional areas only account for a small sliver of spend but their impact on the firm is growing. Marketing and business development are a perfect example of just that.
According to a recent survey released at the Legal Executive Institute’s 24th Annual Marketing Partner Forum, law firms are spending about 2.5% of their gross revenue on marketing and business development efforts. Despite the relatively small allocation (consider outside of legal, organizations are allocating between 9-10% of gross revenue for marketing efforts), the marketing group is tasked with a slew of activities that drive revenue to the firm such as sponsorship, client visits, website strategy, business intelligence, chambers submissions and so on — all in order to bring in new work from new and existing clients.
The good news is that according to the most recent LMA Business Development survey, 44% of law firms plan to increase marketing and business development budgets by up to 10% over the next two years. The catalysts for the increasing emphasis on business development efforts are driven by more internal pressure to generate revenue (68%), followed by pressure from corporate counsel (46%), and pressure from other law firms that are effectively using marketing (43%).
When examining the breakdown of spend for these efforts, the activities that use a high share of budget are not always seen as valuable to the firm, while areas with high effectiveness and value to the firm eat up a much smaller slice of the pie. According to the Marketing Partner Forum survey, sponsorships to promote the firm take up on average 18% of the budget, yet only 26% of firms see this as effective. On the other hand, activities that are directly tied to revenue generation, such as existing client visits, only make up 10% of the budget, yet are perceived as highly valuable and effective by 74% of firms.
The next highest value activity is prospective client visits; however, once again this only makes up a small fraction (9%) of budget, but is seen as very effective by 61% of firms.
Directing the Money to What Works
Herein lies the issue: In a hyper-competitive market where capturing market share requires satisfying a more sophisticated client and winning business at the expense of another firm, law firms cannot afford to continue to dedicate funds to areas that don’t provide even moderate value. This calls for a needs-alignment between spend and value.
Measuring the relative effectiveness of these functional areas becomes vital to this endeavor in order to justify spend and align cost and value. When examining effectiveness, measuring inputs is just as important as measuring outputs. Identifying lead measures such as quantifying the activities involved in cultivating new work for a client — from outreach to analyses and then the result or lag-measure such as the revenue associated with these activities. This can easily be done through pipeline reporting, where you track the activities for which partners are leveraging marketing and business development resources and then tie them to revenue generated from that particular client.
Some ideas of lead-measures include:
Unprompted client communications
Number of practices engaged (a recent Intapp survey revealed its importance for a majority of firms)
Proactive outreach (a Law Vision study showed that this has some of the highest value to clients), including a discussion of client goals (some firms are even requesting a client’s strategic plan in order to identify and anticipate needs)
Client education, such as coaching and training
White space analyses… and the list goes on.
The focus of lag-measures is primarily hours and fees — as in what the client gives back to the firm for the effort. Underlying this is the importance and need to track endeavors and monitor progress. Many firms are beginning to do this, with just about 25% already tracking some return on investment. However, many of these firms that are tracking are doing so in a very ad hoc manner. But all agree, this is an area of low-hanging fruit for marketing and business development to really show value. For example, a quick way to start to formulate a more systematic process is through client score cards that include specified input and output metrics to track.
Recognizing that this only addresses measuring the ROI for a portion of what marketing and business development do, it is still a worthy place to begin. Especially as law firms continue to appreciate the value that business development has to offer and increase the budget for those efforts, business development must allocate these funds to activities that provide the highest value to the firm. Measuring the effectiveness of relative activities and the return on investment only will continue to grow in importance. Activities that are currently eating up large proportions of spend often involve one too many efforts which aren’t necessarily addressing the unique needs of clients — or helping the law firm become more profitable.