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Business Law Firms Need R&D Departments to Increase Profits

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Many businesses formally invest in research and development (R&D) to improve products and services and to stay competitive. This is, in many ways, an unremarkable notion, but law firms have largely ignored it. This is even true for law firms that represent business clients and other entities where the potential for repeat business exists.

If you are wondering what a law firm’s R&D department would do, there is one great place to start: collecting and analyzing data about how much its services actually cost clients in the long-run.

Many business law firms that primarily charge by the hour assume that they can’t predict how many hours and resources a certain case might require. As we discussed in a prior post, it’s most effective to communicate your fees to prospective clients in terms of overall costs rather than hourly rates. This is especially true if your firm’s fees are higher than the market average.

While it may not be possible to predict the cost of a complex litigation case to the exact dollar, it is certainly possible to project the costs of various scenarios that might unfold.   Your R&D department should be able to tell you how much clients spent on average for various aspects of a representation. Fortune 500 companies have access to data aggregated by third parties which can tell them how much their outside counsel will likely charge, for example, to handle a summary judgment motion on a certain issue in a particular court.

There is no reason why a boutique firm couldn’t collect and otherwise analyze its own billing data in the same way. This would enable the firm to focus on total budgets for clients, not just hourly costs. Understanding this information would allow the firm to estimate fees more precisely, and it would provide a significant advantage in the sales process with new business clients.

The time has come for law firms to invest in R& D and to adopt the mindset that collecting information will help them innovate, stay ahead of their competitors, and increase profits.

How to Get More People to Read Your Law Firm’s E-Newsletter

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There is a straightforward and massively overlooked way to improve the effectiveness of your e-newsletter and other electronic communications: sending messages to relevant sub-sections of your recipient list. Just as you wouldn’t send holiday cards that say “Merry Christmas” to folks who don’t celebrate Christmas, you shouldn’t always send a single message to your entire email database. This seems like common-sense advice, but as consultants to law firms, we know that many attorneys violate this rule and few fully appreciate the potential benefits of segmenting their databases.

Let’s use the example of an estate and tax planning law firm to show you a more effective way to maintain your database. At a minimum, keep track of the city, state, and zip code of every potential recipient. You may be attending a conference in a particular city and want to notify only people who live or work nearby.  And you may not want to send information about a change in California law to people who live in other states.

Next, identify specific categories of referral sources. In our example (the estate and tax planning firm), this typically includes CPAs and financial advisors, so you should segment your database accordingly. This will, for example, allow you to avoid sending messages to CPAs during the height of tax season.

Most law firms receive many of their referrals from other lawyers, so you should generally segment your database to include at least two sub-categories of attorneys. One category should consist of lawyers who broadly do what you do. The other should contain every other kind of lawyer. Segmenting your database in this way will allow you to write content that is specifically targeted to each audience. You will also be able to send some messages that you don’t want your competitors reading.

Larger law firms need to decide whether to segment their lists by originating attorney or by practice area. It is often most effective for lawyers to contribute their individual email lists to the creation of a larger database. But this is hard to accomplish at firms where lawyers view clients as their clients as opposed to firm clients. This lack of cooperation among partners is more likely to happen at firms with “eat-what-you-kill” compensation plans.

Marketing professionals and advertisers know the power of segmenting your database into finer and more specific segments. Readers respond better and more frequently when they feel that a message is specifically directed to them.  And modern e-newsletter services make it easy to identify which segments of your database will receive certain messages.

Market segmentation is a powerful tool for reaching your intended audiences. The first step is to collect and input the data.

Five Overlooked Numbers in Law Firm Marketing

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Many law firms overlook a free source of critical marketing data.  Law firms and other service providers benefit from understanding their clients and referral sources as well as they can.  And yet, in my experience as a business consultant to lawyers and law firms, very few firms take advantage of the wealth of demographic information that is stored in one five-digit number.

The zip code.

It can make your marketing efforts far more effective, but I’ve almost never met a small or mid-sized firm that collected and analyzed zip code information relating to where clients and referral sources live and work.

You might be wondering what’s the big deal about zip codes.  Plenty.  Zone Improvement Plan codes were introduced in 1963 to streamline mail delivery by the postal service.  An additional four digits were added to the codes in 1983.  There are now approximately 42,000 codes.

The Census Bureau has for many years collected and disseminated a vast array of data that is tied to zip codes.  This information is searchable through the Bureau’s American FactFinder portal.  See  https://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml

Thus, if you know the zip code where someone lives works, or goes to school, you can collect a lot of information about them and their community, including its demographic and economic profile, as well as specific information about income, average household size, and educational attainment.  Moreover, private companies sell more detailed analyses that includes information about political and religious affiliation, purchasing habits, and other characteristics that allow direct mail companies and others to pinpoint their marketing efforts.

So how should law firms use zip code information?

The answer depends on the nature of the practice and the geographic scope of its best clients.  An AmLaw 200 firm that serves global corporations may have less use for zip codes than a firm that serves local businesses or individuals.  For the AmLaw 200 firm, the most important geographic consideration might be where the General Counsel works.  And that information doesn’t require a detailed zip code analysis.

But almost every law firm is likely to benefit from analyzing the geographic distribution of its referral sources.  One easy way to begin to find out where your best referral sources live and work, and show that on a map.  This analysis can be performed for an individual lawyer’s book of business, a practice area’s results, or for the entire firm.

So, for example, the next time a law firm wants to know where a reception should take place for its alumni, or what business networking events junior partner should attend, don’t guess.  Take the time to see where your best alumni referral sources live and work and use that data to make an informed decision.  Zip code analysis formation can also be helpful in in recruiting or when deciding where to open a new office location.

Zip code analysis is an accessible, low cost, and powerful tool.  And if you didn’t previously know how zip code analysis can help a law firm, now you do.