How Much Should I Spend on My Legal Marketing Budget?

Hence, we are launching a new monthly feature on legal marketing designed to guide you through the law marketing landscape and help you to gain a better understanding of how to effectively market your business. This month, we begin with the question of how much money you should spend on your law marketing budget.

Deciding your budget should be the first thing you do before you make any other decisions on your legal marketing strategy. Without knowing your budget, you will not be able to measure your success, which could lead to a marketing strategy that is operating blindly and does not deliver. Measurement is the key to a successful marketing strategy and the budget is the start point for that process.

So How Much Should I Spend on Legal Marketing?

In short, there is no one figure that you should spend. According to recent American Bar Association reports, fewer than half (46%) of law firms have a marketing budget, and only 14% of solo law practices have a defined budget. It seems that relying on word of mouth and referrals is still the preferred method of attracting new clients. However, doing this could mean that your law firm is missing out on a lot of potential clients and revenue.

Most law firms that do have marketing budgets spend between 2 and 15% of their revenue on their marketing output, with the majority of outlays skewing more towards the lower end of those figures. But if you are a smaller firm spending at that lower end, the odds are that your marketing might not deliver the results you desire. Effective legal marketing budgets should be based on your individual law firms and a variety of factors. It is also vital to remember that a smaller marketing budget well spent is better than a bigger marketing budget used poorly.

Most law firms that do have marketing budgets spend between 2 and 15% of their revenue on their marketing output.

This guide will go through the best steps to create your law firm’s marketing budget to maximise your return on investment and win you the most new leads.

Law Marketing on the Rise

In the last few years, the legal marketing landscape has changed significantly; the days of simply providing a good service and relying on the wheels of the referral network to turn are over. Now everything is more sophisticated, more strategic and more connected both within the online sphere and outside it. As legal marketing becomes more prevalent, marketing budgets have risen, with law firms slowly realising they need to increase their marketing outlay in order to develop their business. This year it has been reported that 62% of legal businesses are looking to increase their focus on marketing efforts and business development – a figure surely inspired by the fact that 41% of law firms that have increased focus and expenditure in marketing have reported it as the single factor that has been most effective in driving new business.

It is these figures that have led to a huge increase in legal marketing. According to the 2018 legal report by the Legal Marketing Association and Bloomberg Law, the world’s largest law firm by revenue – Kirkland & Ellis, who earned $4.1 billion dollars in 2019/2020 – will be among those spending 2.67% of their revenue on marketing, which equates to an eye-watering $84.5 million dollars. Whether or not your law firm earns thousands, millions, or indeed billions, the simple truth is that you need to know how to create an effective budget for your marketing. But it is not quite as simple as just throwing money at a problem.

This year it has been reported that 62% of legal businesses are looking to increase their focus on marketing efforts and business development.

The report from the Legal Marketing Association and Bloomberg also contained some very revealing statistics regarding the expectations and realities of lawyers and attorneys when discussing marketing. Nearly half (48%) of respondents felt that their rivals were doing better marketing than their law firms and 91% of lawyers relied on marketers (both in-house and external) to deliver marketing and business services, yet only 19% of those lawyers believed that the size of the budget had hindered growth. But could this reluctance to invest in the right way be why half of their rivals are outperforming them?

Why You Need a Bespoke Law Budget

Simply put, there is no one rule for what your law budget should be and there is no one figure. The truth is that each law firm should have its own budget based on its goals at that particular time; so while the top 200 law firms in the US and UK spend between 2.67% and 4% on their marketing budget, that does not necessarily mean that you should follow suit.

The example above highlights what Kirkland & Ellis are spending as a percentage of their revenue, but it is important to remember that your law firm might not be competing with Kirkland & Ellis. Your law firm might serve a different location, a different customer and be at a different stage of your business life than Kirkland & Ellis and these factors will determine what your budget should be, not what the other law firms are doing.

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Building a Law Marketing Budget

So how do you decide what you should spend on law marketing? Below, we will outline the best practice for creating your own bespoke law budget for your business. A marketing budget that is tailored to your business and that will help you achieve your goals. Let’s take a look at the various factors you need to consider when creating your marketing budget.

Type of Law

Different types of law cost different amounts to market. For example, in paid search engine marketing, personal injury lawyers cost four times as much to advertise as criminal defence lawyers. You can see from the chart below how the different types of law that you practice will have an effect on your budget.

For example, a personal injury law firm will need to allow more budget for marketing than an estate planning firm because the market is that much more competitive and therefore expensive to market in. By utilising this chart as a guide, we can easily calculate the increase or reduction in budget depending on your business’s area of legal practice.

B2B or B2C?

Within this area, another factor you need to consider along with the type of law you practice is whether you serve business clients or if you are B2C (personal injury lawyer, divorce lawyer, etc.), because this too will have a bearing on your budget. Traditionally, any industry serving the B2C market is more expensive to market to, so if you are a commercial litigation lawyer, your advertising spend is likely to be less than a firm of divorce lawyers.

Firm Revenue

If you want to work off the old-fashioned marketing budget calculation and fall in line with what the bigger law firms are spending, then all you need to do is take your revenue – either existing or desired for the year – and work out 3% of that figure. For example:

Yearly gross revenue £100,000 X 0.03 (Your marketing budget percentage based on top law firms)

= Your yearly marketing budget (£3,000)

This may not seem like a lot to you. That is because one of the reasons that the top law firms spend a small percentage on marketing is because, as a proportion of their revenue, the figures are a lot bigger due to the size of their revenue (and, crucially, their profit margins – more margin means more money for marketing). For a company that turns over £100,000 annually, a mere £3,000 for the year is probably not going to serve you very well in a competitive marketing environment.

Your marketing budget needs to reflect your revenue and your goals. If you look at the marketing spend of the top law firms, you will spot a pattern:

Top Law Firm Marketing Spends

• ALM Top 100 Law Firms– 2.67%
• ALM 101 – 200 – 2.71%
• ALM Firms Outside the top 200 – 2.86% plus

So as the revenue decreases, the marketing spend as a percentage of revenue increases with it.

It would also be worth mentioning that, from a marketing perspective, law firms spend very little compared to other industries. In fact, across sectors, the average SME spends around 11% of its revenue on marketing. But law firms that are prone to relying on referrals still spend very little by comparison.

My tip would be to treat your law firm like an SME in another sector and ignore what the other law firms are doing. If 41% of legal businesses are driving more leads as a result of increased marketing spend, then surely it would make sense to allocate more budget and use it well in order to get more customers?

If you did this and used the same calculation as shown above, your legal marketing budget would increase to £11,000, and with a good marketing strategy you could be very confident of earning a very significant ROI (return on investment) with that budget.

Company Standing

Another important element to consider is the current position of your law firm. We have touched upon the top law firms and the amount they spend, and one of the factors driving those proportionally low expenditures being the sheer size of their balance sheet, which allows them to spend vast amounts on marketing. However, another facet of those law firms that spend a low percentage of their revenue is that they have something in common: they are well established, large law firms. Those types of firms have gained such a reputation that clients will actively seek them out, not the other way around. Your law firm may not have that advantage – yet.

A good way to think of this is that, if you are an established company, you can probably afford to spend a little less than a brand new law firm. As a general rule across business (if we ignore the legal marketing averages, which we know are quite low), it is commonly accepted that established companies will spend between 6-12% of their gross revenue, and new businesses will spend significantly more (between 12-20%) to allow them to gain a foothold in the market and become an established brand.

Although this might seem like a lot to spend in comparison, if you are new to proceedings then it is a solid strategy to follow this rough outline. Remember that the number is a only a guide.

An essential tip would be to consider your company standing from a customer perspective and not your own. If you have already got a good marketing presence (such as a good website, a content strategy, Search Engine Optimisation, social media etc.), then you could class yourself more in the ‘established’ category even if you are a law firm that has only been open for a few years. But if you have none of those things and your marketing amounts to very little, even if your law firm was founded in 1862 you must class yourself as one of the new guys in the marketing world, because while others in the legal profession may know your name, it is highly likely that – without any previous marketing – your target audience will not.

Location

This is an often overlooked element of creating your legal marketing budget. As I have stated previously, there is not and should not be a one-size-fits-all budget for a law firm and the location of your business is hugely important in determining how much you need to spend. It is well known that there are some locations with more law firms, attorneys and lawyers than others, so we can deduce that if you are operating in one of those areas you will need to spend more than someone with a law firm in a small town. Take a look at the numbers below:

New York City

Law Firms – 9,877

Attorneys – 105,559

Dallas, Texas

Law Firms – 3,286

Attorneys – 18,809

As you can see, there are three times as many law firms in New York than in Dallas, and over 80% more attorneys in practice – many of whom are vying for the same customers as your law firm. You need to consider how this impacts your budget, because it is clear that a law firm in New York is going to have to spend more than one operating in Dallas due to the competition already present in the area.

Competitors

This needn’t be as childish as finding out what your competitors spend and then adding 10% on top of that figure, but it is very useful to benchmark by making yourself aware of your competitors’ marketing practices and working out roughly how much they are spending. Assuming their marketing is good, if they are spending £10,000 a year on marketing and you are spending £2,500, who do you think will be getting more leads and securing more new customers?

Although as mentioned previously a smaller budget spent well can outperform a larger budget spent poorly, it is likely that if your competitors will be able to reach more customers if they are spending significantly more than you on marketing. The best practice here is to try and stay at least on a par with your five closest competitors. For example, one competitor might have the following in their marketing canon:

• A new website including a blog and SEO – approximately £4,000.
• Active Google PPC campaign and appearing at the top of the paid search rankings - approximately £1,000 per month.

We can surmise that if the website and PPC campaign look good, they are likely to be spending at least £16,000 on marketing in a year. If you do not benchmark against your competitors and you are not aware of this, you probably will not be in a position prepare to compete with them. It does not matter if you do not necessarily spend the same; just make sure you include it as a factor when you are building your budget. This also works both ways, so if all your competitors’ marketing is non-existent, then to capture a larger share of the market you can get away with a smaller budget.

Average Customer Spend and Customer Value

Here is a tip for existing law firms, or new ones with a good grasp on current client sales and value: part of your budget needs to be tailored to your target customers and current clients.

If your average customer spends £2,000 and never returns to do business with you again, you will not have much money left over for marketing and will need to cut your cloth accordingly. However, if your average client spends around £10,000 per case, and they work with you twice a year on average for 5 years, then that means your average customer value is £100,000. That is likely to increase your profit margin greatly per client, allowing you to spend more on marketing.

If your clients fall into the latter category, it would also be good practice to increase your marketing budget, because higher value clients tend to need more convincing to go to a new law firm, and marketing can be an excellent way to begin and build your profile with them and eventually welcome them on board as a new customer.

Marketing Infrastructure and Current Status

The last point to bear in mind is your current marketing status and infrastructure. If you are new to the marketing side of the legal world, then you might not have any dedicated resource for marketing, which will become a factor in your marketing budget. In fact, in a recent ABA survey, 97% of firms with over 100 staff reported having a marketing team, whereas in firms with under 49 employees and solo law firms that figure falls to just 37%. Only a year or so ago, 66% of law firms stated that they had either only one full-time member of staff or none dedicated to digital marketing, which is the largest growth area across all marketing.

If you fall into the 66% category, then realistically you will need to consider this when creating your budget, as it is a resource that you currently do not have but almost certainly need. You do not necessarily have to employ more people; it may serve your law firm better to use an external legal marketing agency to help you with your marketing, which can keep time, costs and administration lower for your business.

If you already have an entire marketing team in place, then you should naturally be able to minimise this part of your budget.

Calculating Your Law Marketing Budget

If we start at an absolute minimum of 3% of revenue as the least your law firm will be spending on marketing, we can amend and adapt this figure based on the factors previously mentioned. Start with a blank piece of paper, write down your own responses to each one, and then you can begin to make informed decisions about your budget. Once you know these factors and you have made a note of them, you can define your goals and set yourself a measurable, specific budget aligned to these goals.

If your goal is the most common in legal marketing, which is lead generation and more customers, then you can calculate your budget based on the above factors to give you a bespoke budget that will work best for your law firm. See the example table below for a fictional personal injury lawyer in London.

Using the above table, if you are a new law firm starting out in London that works exclusively B2C with clients who have a lot of competitors, you know that your marketing budget will need to be higher at somewhere around 15-20% of your projected revenue. If in the table above we used an established law firm working in estate planning with few competitors in a small town, you could realistically look to spend between 6-10% of your annual revenue, or potentially less if your marketing strategy was well implemented.

The key when preparing your marketing budget is to consider all the factors to create your own bespoke budget rather than using an arbitrary figure that Google told you. The creation of a budget for your legal marketing is the start of your law firm’s marketing journey and it deserves time and attention. If you follow this legal marketing budget guide, you are far more likely to succeed in growing your business and winning more customers.

Next Month: Where Should I spend My Legal Marketing Budget?