The first third of the year is behind us and it’s an opportune time to analyze your law firm’s financial performance and make changes to grow revenue and improve profitability.
Your financial reports should be complete through the end of April, and four months of results are enough to identify potential changes in course. This is particularly true in 2022 because last year’s financial performance may not be easy to replicate. Specifically, many law firms increased their profitability in 2021 by reducing travel and entertainment related expenses. While it is tempting to conclude that profitability levels can be maintained in 2022 by repeating what you did in 2021, that might not be possible or desirable.
To maximize your profit, there are two categories of expenses that are particularly important to review.
The first is payroll. It’s your largest expense and too many firms treat it as a fixed expense that gets tweaked at the end of the year when decisions are made about compensation and bonuses. In today’s market you should take a more active approach. Specifically, you need to analyze who is making the greatest contributions. If your profit margins are lagging, it’s most likely because your lawyers are not generating enough revenue relative to the total cost of their compensation. If your lawyers aren’t generating between two or three times what you pay them (including benefits and imputed overhead) there is room for improvement.
The second is marketing. An increasing numbers of firms, especially boutique firms, aren’t spending enough on marketing. In a post-pandemic world with less business travel other forms of marketing are becoming more important. Specifically, you could consider increasing your marketing spend in the following areas:
- Upgrading your website,
- Sponsoring events (in-person and virtual) where your best clients and referral sources meet.
- Rebranding—The world is changing rapidly. Perhaps it’s time to move away from the scales of justice and courthouse pillars.
- Increasing your online exposure through SEO and increased commitment to social media, especially LinkedIn.
- Investing in a more robust electronic newsletter.
If you want to impact your bottom line in 2022, now is the time to devote more resources to content creation.
What new marketing initiatives are you going to kickstart? If you are inclined to rely on what you think has worked before – reconsider. The costs of standing still (both in terms of how you deploy your payroll costs and your marketing expenses) have never been higher.