One question attorneys and legal professionals grapple with is how much to spend on legal marketing. There is no set answer to this question unfortunately, as your budget depends on various factors. Asking yourself some basic questions is a good place to start:
- Do you want to increase your caseload?
- How competitive is your area of law?
- What are your margins?
The majority of law firms in the country are considered small businesses. The Small Business Administration (SBA) classifies any law firm that has revenues of less than $11 million per year as a small business. According to a recent study done by the SBA, small businesses spend an average of 6-8% of their revenue (gross receipts) on marketing, but there are a few situations where you might spend more than 8% of your revenue on marketing.
Do you want to increase the number of cases you handle monthly/annually, and if so, at what pace? If you do not want to grow your practice and are happy with the cases coming in, you may only need to spend little to no money on marketing. If you are looking for moderate growth, you will likely have to spend in the 6-8% of revenues range.
Average growth in revenue for small business was 7.8% in 2015. Thus if your firm has $5 million in revenue, an increase to $5.4 million would be considered moderate growth.
You have to spend more than the 8% if you are looking to significantly increase your caseload and revenues.
If you practice in a competitive area of law and want to grow your practice, you will likely need to spend above the 8% average to get a consistent flow of cases coming in. The SBA recommends that you spend up to 20% of your revenue on marketing if you are in an extremely competitive industry.
Average pay-per-click (PPC) costs for keywords in your area of law are generally a good indicator of how competitive it is. Personal injury/auto injury lawyers will likely need to spend much higher than 6-8% of revenue, as some of the most expensive PPC keywords in the legal industry are keywords related to auto accident lawyers.*
If your law firm has high operating profit margins, you can afford to spend a higher percentage of your revenues on marketing. An operating profit margin is a way to measure how much revenue you have left after accounting for variable costs like staffing or marketing expense.
Operating profit margin is calculated as:
Revenue – Cost of Acquiring Cases – Overhead (Employee cost)
If you run an efficient law firm where your overhead is utilized efficiently compared to the average law firm, you can afford to spend more on acquiring cases (marketing) and increase revenues and profit overall. According to a study done by Law Crossing, law firms typically spend about 45-50% of their revenues on overhead.**
This is by no means all of the questions you ask yourself before determining your marketing budget, but it is a good place to start.
We Can Help
At eGenerationMarketing we generate case leads for Social Security disability, personal injury, workers’ comp and employment law attorneys. We work with law firms of all sizes and with vastly different marketing budgets. Give us a call at 617.800.0089 to find out how we can help grow your caseload!