In an effort to improve the bottom line, a firm’s management team looks at two things: revenue and expenses. Obviously, all firms with a profit-generating orientation seek to increase revenue and to decrease expenses. When times are good and the work seems to flow in without anyone making much of an effort, expenses tend not to be a concern. But with the changes we’ve seen since the last recession – and the challenges associated with increasing income when there seems to be less available work and competitive pressure on fees – these days all eyes turn to cutting expenses.
Unfortunately, when marketing and business-development expenditures are thought of as expenses and, worse yet, as expenses that are discretionary (in the sense that some short-sighted law firm managers and partners may not consider marketing to be necessary in order to keep the lights on), marketing budgets are among the first hit and the hardest hit.
Marketing: An Investment
Rather than being considered an expense, dollars allocated to marketing should be thought of as an investment. By definition that means an allocation of money with an expectation of future return. This of course makes perfect sense, since the whole point of marketing is to generate future income for the firm. But as obvious as this may sound, some firms are hesitant to characterize marketing spend as an investment because it’s so frustratingly difficult to measure marketing ROI, and as number-crunching becomes increasingly a part of what law firms do these days, there has to be a measureable ROI in order to justify any kind of investment.
Given that the results associated with marketing spend tend not to be immediate, tangible or easily quantifiable – and therefore extremely difficult to measure – firms continue to struggle with finding a way to properly measure marketing ROI.
Some people who like to believe that modern technology provides a solution to every problem claim that it is now possible to set up software that will track and quantify the results achieved from a firm’s marketing dollar expenditures. But it only takes a quick look at what such tracking models input and output to realize that these models only calculate returns for things like direct mailings or website hits that lead directly and immediately to files opened and fees billed. When is the last time that happened at your law firm? If your firm is like every other firm, the answer is never.
Measure Something Different
Given that it continues to be nearly impossible to measure ROI using either conventional approaches or modern technology, how is a firm to determine what constitutes a good investment?
One way to get around the difficulties associated with measuring business-development ROI is to assess the costs associated with NOT making the investment. Or, in other words, to determine what the downside would be, from a dollars and cents perspective, of not making the investment. “Costs” of this type are generally measured in terms of missed or lost opportunity: typically either a loss of future work from existing clients, or not getting new work from new potential clients.
The following is a list of questions that can be helpful to apply when assessing what the real cost is of NOT investing in a particular business development strategy, project or activity: What is the objective or the purpose of the proposed investment? What is the desired outcome that is expected or anticipated? If this particular strategy or initiative is successful, what will change and what will be different (think both in qualitative and quantitative terms)? What will be the cost to the firm if it doesn’t invest in this strategy or initiative (again, think both in qualitative and quantitative terms)? What is the likelihood that the investment will result in the desired result? Given the above, does the potential loss of return associated with not doing it justify making the investment?
Using this approach, it is possible to assess whether or not a particular investment makes sense, based on minimizing loss rather than measuring gain.
Donna Wannop, LLB, MBA, is a practice-development coach (www.donnawannop.com) who has worked exclusively with the legal profession for over 20 years. Reach her at [email protected].
