Throughout history, there have been up and down business cycles – great economic expansions, depression and recessions, times of war, great change, and uncertainty. For a recent perspective on business, cycles click here.
During times of economic uncertainty or impending economic uncertainty businesses — including law firms and legal tech companies – naturally have a first instinct tendency to believe that their best action is to decrease their marketing budget as a way to reduce expenses. It may feel like a marketing budget reduction or delaying a website refresh is the right move, but many businesses have learned the hard way that it is exactly the wrong action to take – that in the end, it will actually lower your firm’s profit margin and be a revenue setback when economic expansion inevitably happens again. In fact, in a Millward Brown study, 60 percent of the businesses that decided to cut their marketing budget during the Great Recession saw their “brand use” decrease by 24 percent and their “brand image” decrease by 28 percent. Furthermore, according to Kantar brands that decrease or stop their marketing to save costs will see a 39% reduction in brand awareness and it will delay their recovery from an economic downturn.
Businesses that view marketing as an “investment” and go against the grain to increase their marketing budget during uncertain economic times have gained new customers, increased their revenue and profit margin, and emerged stronger while other companies gave in to their initial instinct at the first sign of an economic downturn. For example, during the 2007-2009 recession – the Great Recession – Amazon increased its profits by 68% by increasing its marketing budget and launching two very successful product offerings, the Kindle and its B2B cloud service AWS.
The same concept as the Amazon example applies to law firms and legal tech companies. If during uncertain economic times you choose to increase your marketing budget or at least maintain the same marketing budget, and you choose to go forward with adding additional attorneys or specialties to your firm, you will put your firm at an advantage over the many other law firms that give in to their first instinct to cut budgets.
Overall, law firms should budget between 2% and 10% of gross revenue for marketing and advertising, and in the case of personal injury firms, the most successful firms budget up to 20% of gross revenue for marketing and advertising. As a general rule of thumb- Large firms should budget 2-5% of fee-based gross revenue for marketing and advertising. Smaller law firms generally should budget 5-10% of gross revenue for marketing and advertising.
An economic downturn also means new opportunities for your law firm. You should consider shifting focus or expanding into areas of law that are “recession-proof” or can present new revenue streams for your firm when purchasing slows down, bills increase, credit tightens, people lose jobs, etc. Examples include bankruptcy law, foreclosure law, criminal law, family law, civil law, labor and employment law, wills and trusts, small business law, and intellectual property law.
Here are some tips to prepare your law firm and maximize your marketing budget during uncertain economic times:
Note: ONE400 is a Clio integration partner and also a Lawmatics integration partner.
Also, here are some additional steps your law firm can take to prepare and thrive during an economic downturn so that your firm comes out stronger and thrives when the business cycle returns to economic expansion again:
1. Re-engage with your firm’s existing clients.
An economic downturn is a perfect time to grow your practice and increase margins to provide an even more solid foundation for long-term growth when the inevitable business cycle returns to economic expansion – and it will. The moves you make today will have a direct impact on your firm’s future. Be certain you make the right decision at what could be a pivotal moment in time for your law firm when an economic downturn appears to be looming.
If you want additional guidance or help with your law firm’s marketing, website, or growth consulting, talk with an expert at ONE400 today.