What Percentage of Revenue Should be Spent on Marketing?

Money2This question is answered amply in the new March 2005 issue of Law Practice, published by the Law Practice Management Section of the American Bar Association.

The magazine asked me, "How much money should I spend?" and here's my answer (from page 35).

Whatever you're spending, it isn't enough. The typical corporation spends from 10 to 15 percent of revenues on marketing. In contrast, the 2004 Altman Weil Survey of Law Firm Economics indicates that the national average that law firms spend on marketing as a percentage of revenues has actually dropped to 1.7 percent. This is pathetic. Marketing is the jet fuel that makes companies fly.

The ratio of marketing dollars to revenues decreases as firms grow larger--nine-lawyer firms spend 2.0 percent while firms with more than 150 lawyers spend 1.5 percent. And the ratio decreases according to market size--firms in markets with populations of less than 250,000 spend 1.8 percent, while firms in markets with 1 million or more spend 1.6 percent.

Just as important as percentage spent, which has not changed materially in the past 10 years, is how law firms spend their promotional dollars. Money spent on tables at charity functions, ads in symphony concert programs or mass-mailed holiday cards is wasted. It's dumping the jet fuel overboard. Investments should only be made in marketing activities that are measurable.

For example, if you present a seminar you must follow up to see which attendees became clients. You should tune up your Web site so that it addresses client issues and generates phone calls to lawyers. And if you participate in a trade show at a conference of general counsel, you must tally up the new files that came in as a result.

Marketing should be viewed as an investment. Law firms should spend money on business development and should expect more business in return.

Spend $14K to $17K per lawyer

According to The BTI Consulting Group (on page 13), marketing budgets between $14,000 and $17,000 per lawyer garner the optimal return, delivering the highest positive impact on a law firm's revenue growth and profits per lawyer. These figures are based on more than 140 interviews with managing partners, directors of marketing and directors of business development in Amlaw 100 and Amlaw 200 firms.

"Only 9.6% of law firms target their spending to these levels," notes Michael B. Rynowecer, BTI's President. The payback at these spending levels is more than twice that of firms that under commit to their marketing budgets.

"Over 80 percent of law firms under-commit resources to support their marketing activities. These firms are at risk of never investing enough in marketing--they struggle to see return on their marketing investment and ultimately may eliminate the very marketing practices that cement financial success," he said.

For more detail, see BTI Survey: "12 Marketing Practices Drive Pacesetting Performance" on the LawMarketing Portal.

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