Commentary: Integrate profitability into your marketing plan

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By Jay Wager
Dolan Media Newswires

In the quest for new work, many attorneys and firms take stock of their relationships, revenue and hours worked to create a list of “best clients.” Next, they identify other clients and prospects with similar needs and issues who would be receptive to a pitch.

But attorneys often confuse “best” with “biggest.” Is the work currently being done for the biggest clients always the best to pursue for the future?

There is no doubt that size matters. Hours worked and resulting revenues are important to the health of a practice.

However, expansion and firm growth is a forward-looking initiative in a changing market.

The reality is that more must be delivered for the same value — or less. Marketing efforts thus should be directed at practices, geographies and industries that are consistently profitable.

Profit, generally considered as fees collected minus costs, is not accorded sufficient merit by legal marketers. It is included in other firm decisions such as setting hourly rates, hiring attorneys and staff, and determining compensation.

In-house finance departments produce profit figures on a quarterly, monthly and even weekly basis. Why shouldn’t those data be leveraged to help develop marketing strategy and priorities?

There are two ways to increase profits: increase revenue and /or reduce costs. Significant cuts can produce results in the short term, but service and capacity suffer, which can reduce revenue. That leaves increasing revenue as the primary lever — but not all revenues are equal.

There are new revenues from clients, industries or locales that are lower in cost to secure and deliver. Then there are opportunities pursued in areas that are mature, have declining profitability or are in a field saturated with well-established competition. The former is preferred, but usually both are pursued.

The point is that there are differences in future client profitability. Lawyers can reliably identify and predict those differences with existing financial information that they have in-house.

The first step is to understand the firm’s profits and how they are earned. Agree on a definition of profitability and have it routinely calculated and shared by finance. Inputs usually include productivity, pricing, utilization, overhead, billing and collection speed.

Then start measuring across different parameters: by client, client size, industry, geography, matter, work type, practice type and attorney. The process is surprisingly straightforward, as legal time/billing systems are well-equipped to collect, store and produce the information.

But what to do with the information? Redefine your “best clients” as measured by relationship, revenues and profitability. Analyze the industries they are in and the areas of law that are being served. Which areas are growing and which are declining? How does the marketing strategy align with attracting more from the revised list of “best clients?”

Replicate your successes and commit to expansion in these areas.

Should all but the highly profitable areas be abandoned? Of course not. But being aware of the trends, capitalizing on rising interests, and scrutinizing marketing investments in areas that have low or declining profitability can direct finite marketing resources to the best opportunities.

Jay Wager is the business development manager at Edwards, Wildman, Palmer and is past president of the Legal Marketing Association’s New England chapter. He can be contacted at [email protected].