Need A Better ROI?

Evaluating Your Marketing Dollars

What Is a Good Return on Your Law Firm’s Marketing Investment? Determining a good return on marketing investment is crucial for any law firm. Although a straightforward answer is elusive, we have gathered enough information to provide multiple insights.

Our Research Methodology

Given the scarcity of public financial data from private businesses, we conducted extensive research, including:

• Marketing Agency Blogs, Testimonials, and Case Studies
• Nielsen Advertising Case Studies and Surveys
• Harvard Business Review Articles
• Altman Weil’s and Industry Reports from Hoover and IBIS World
• Financials of Publicly Traded Companies
• Reputable Small Business Advising Organizations
• A handful of law firms with online financial disclosures

The Variability of ROI

The absence of a standardized ROI calculation across businesses often leads executives to use the Revenue-To-Cost (R:C) ratio for decision-making. Unlike ROI, which factors in all costs to calculate profit, R:C simply divides gross revenue by costs, offering a more straightforward approach to assessing returns.

R:C = Revenue / Costs

For instance, if you spend $1,000 on marketing that results in $5,000 in gross revenue, the R:C is 5.

GROSS REVENUE = ATTORNEY FEES (I.E., THE TOTAL AMOUNT OF MONEY YOU BRING IN.)

This calculation, though less complex than ROI, provides a sufficient basis for decision-making if you have established benchmarks. General R:C Benchmarks According to Web Consensus:

• 5X is considered good.
• 10X is outstanding.
• 20X is exceptional.

These figures are supported by claims from marketing agencies and our client experiences.

Customizing Your Minimum Viable R:C

To determine when marketing becomes unprofitable, consider the average value of a case, the contribution margin, break-even points for both business and marketing, opportunity costs, and other investments, as well as the allocation of your time.

Understanding Your Contribution Margin

The contribution margin is the revenue from a case minus all variable costs directly attributable to it. For many firms, these costs are often billed to the client or taken out of the final settlement, leading to a contribution margin near 100%. We recommend using 95% as a safety net to account for unreimbursed variable costs.

Determining Your Break-Even Points

Calculating both business and marketing break-even points will help you understand the minimum number of cases needed to cover costs and assess the effectiveness of marketing campaigns.

Inclusion of Fixed Costs in Marketing Calculations

There is debate over whether to include fixed costs in marketing break-even calculations. Some argue that marketing-generated leads should bear a portion of the fixed expenses, while others suggest that if the firm is already covering fixed expenses, the additional revenue from each new case goes directly to profit. We recommend understanding both perspectives and adjusting according to your firm’s situation and growth objectives.

Comparing Marketing to Other Investments

It’s important to weigh the opportunity costs of investing in marketing versus other options like the stock market or real estate. Consider the potential returns and risks associated with different investments and how they compare to the returns from marketing.

Understanding Different Marketing Returns

Factors such as campaign maturity, competition, pricing strategies, and conversion rates significantly influence marketing returns. Understanding these factors will help tailor your marketing approach for better returns.

It makes sense, but can you simplify it?

An R:C of:

• 2 means you are probably at least getting your money back.
• 3 and it is worth your time, but you can do better.
• 4 it is doing OK, but there may be better options.
• 5 is a solid, good return.
• 6-10 is better than most.
• 10+ is exceptional, but likely unsustainable.

Why Do Firms Get Different Returns from Their Marketing?

Returns vary due to several factors, including the maturity of marketing campaigns, market saturation, pricing strategies, practice area restrictions, and overall strategy effectiveness. Improving your marketing approach and understanding these variables can lead to more favorable returns.

Sub-5X Returns

In The Beginning – Marketing campaigns that are just getting started will not instantly produce significant returns. How long it takes for a campaign to get off the ground will vary. SEO campaigns might take a full year, while a PPC campaign might take a couple of months.

Competition – Some markets are just over-saturated. PPC is a great example because of how easy it is for a law firm to start using AdWords. Occasionally we will see an influx of firms competing in AdWords, which drives up the cost-per-click. These are usually short-term fluctuations; when these new entrants don’t realize a return, they exit. This drives the costs down and the return up. Firms with large budgets tend to notice these fluctuations less.

Lower Prices – Some firms charge lower hourly rates. If the average firm spends $1,000 on marketing that brings in 20 hours at $250 per hour in revenue, their R:C is 5. If another firm brings in 20 hours at $200, their R:C is 4.

Practice Area Restrictions – Some practice areas do better than others in certain mediums. One area that we consistently hear issues from is debt relief, specifically attorneys who do only debt relief. We have seen some bankruptcy firms do debt relief in addition to their primary bankruptcy practice, and that can work. But debt relief by itself does not typically generate high returns because of the low average value of a client.

Poor Strategy – Not every marketing strategy will work. Take social media for instance: three years ago, every marketer was preaching the value of social media. This was driven by the fear of falling behind the curve and was not substantiated with any results. The average small business social media campaign three years ago cost $2,500 per month, and social media marketing agencies were popping up left and right. Today, all of those agencies have turned into consultants, because social media just did not produce returns to warrant those fees. Is there value in social media? Yeah, but not at $2,500 per month.

Poor Conversion Rates – Sometimes there is a problem in the office. Here is a great real-world example: Recently, a firm implemented an internal change, reassigning a seasoned employee to handle intakes. However, her dislike for this new role was clear from her phone manner. After conducting several ghost calls to diagnose the issue, the firm recognized the problem and reassigned her to her previous position, replacing her with someone more adept at client interactions, which led to an increase in signed cases.

5X Returns

Established Campaigns – Firms that are doing more things right than wrong. If your firm is seeing 5X on a regular basis, you should be asking what more can we be doing, rather than what can we do different.

10X Returns

Multi-Year Average – If most years you get an R:C of 5 and then one year have an R:C of 20, your average is going to be much higher.

You Are Equipped For Every Case – The best pricing strategy is one that allows you to serve all customers. It is why there are Toyota cars and Lexus cars. Or first class, business class, and economy. Firms that can handle every case (within their practice area) will convert more leads.

Referral Fees – A significant number of our clients do not charge for referrals. That can be a solid strategy for developing a strong and loyal network, and that network can send the types of cases you are looking for back to you. So it is not necessarily bad to not request a referral fee. But firms that are executing a plan to gain referral fees and factor those fees into their R:C are going to experience a higher R:C.

20X Returns or Higher

Your Firm Was First – When you are the only firm competing, you can do quite well. This is a strategy many mass tort firms utilize when trying to uncover cases before anyone else knows about it. Of course, the big pitfall here is all of the marketing efforts that didn’t result in any revenue.

You Got A Big One – Let’s say your annual SEO budget is $36,000 and you signed a truck accident case valued at $2M. Your one-third gets you ~$666k, which alone is an R:C of 18.5. Combine that with the other small cases you signed, and you are probably over an R:C of 20.

Conclusion

Each law firm’s situation is unique, and understanding the nuances of marketing returns is vital for making informed decisions. This study provides insights into achieving different levels of return and optimizing your marketing investments accordingly.