Measuring ROI in Law Firms: The Quest for the Marketing Grail. Norm Rubenstein Lex Mundi Houston, TX March 4, 2005

Transcription

1 in Law Firms: The Quest for the Marketing Grail Norm Rubenstein Lex Mundi Houston, TX March 4, 2005

2 Why talk about return on investment?

3 We all have to justify resources: budget season in law firms is as predictable as death and taxes. We all aspire to root out ineffective marketing: a lot of money is wasted in law firms that could be reapplied to marketing activities worth the investment in dollars and time. There is a great deal of misinformation about ROI in professional services marketing: many law firms measure the wrong things instead of real indicators.

4 Let s create a little context for our discussion:

5 As professional services marketing continues to evolve, legal marketing programs grow more sophisticated. Today, in market-leading firms, promotion supports strategy. Levels of investment keep increasing: 2-3% percent of gross revenues is not uncommon.

6 But increased marketing visibility and investments come at the price of increased scrutiny.

7 Marketers are being asked by their firms: How do we know that the dollars we are investing in business development and marketing are having a positive impact on our bottom line?

8 When lawyers ask? "What is the return on my marketing investment?" they generally are asking, "What is marketing s impact on bottom-line profitability?"

9 Historically, we have answered anecdotally. In our collective defense, we didn t have much choice.

10 Law firm cost-accounting systems do not easily support measurement of ROI. Why?

11 First, not all firms measure profitability. Second, many firms only measure individual client or matter or office profitability; moreover, they focus on the cost of delivering service and ignore the cost of acquisition or relationship expansion? a critical component of determining ROI.

12 For a different day: Even if you accurately track the cost of new business from existing or new clients, you are not answering the question of whether your marketing is enhancing bottom-line profitability unless you know whether the work you have landed is profitable work that is, is work that the firm s business model enables it to execute profitably.

13 First we must define exactly what we are trying to measure: a discrete act of marketing, or the net impact of marketing over a defined period.

14 Why is it impractical to measure individual acts of marketing?

15 We never market in a vacuum. We do many things in concert, so teasing apart the differential impact of individual marketing initiatives is impossible unless we have experimental controls in place. It is virtually impossible to know whether new business is the result of direct sales, advertising, media relations, your Web site, some other value-added products or services, or of some combination of these events over time.

16 Sadly, despite the fact that law firm cost-accounting systems would have it so, the cause-and-effect relationship of marketing to the generation of new business does not always confine itself to a calendar year. Professional services marketing is a relationshipdeveloping enterprise that can take years to generate results.

17 But what might an experiment to measure a single act of marketing look like?

18 You decide to hold a webinar and you want to know what kind of invitation will draw most effectively. You design four versions mixing and matching two visual alternatives and two sets of copy and you randomly assign them to your 1000-target mailing list. Then you study the responses to determine whether one of the four resonated more than the others... if one did, you will employ what you have learned on your future marketing.

19 Note: you are not measuring bottom-line impact here. You are measuring whether one form of marketing yielded better results than another.... Whether the webinar contributed to a client s decision to retain the firm or send it a new matter would have to be measured differently, and in light of other marketing to the same client.

20 So instead of measuring individual acts of marketing, are we better served measuring the cumulative impact of our marketing program over a defined period of time?

21 Yes. But even that process is far from simple. In studying the impact of our marketing, we must consider the impact of several variables:

22 the marketing itself i.e., our manipulation of our audience(s) history external variables (e.g., Enron, Sarbanes-Oxley, Andersen)? heighten our audience s awareness maturation effect internal variables our audience becomes more sophisticated (e.g., CLE, legal press)

23 When we market, we generally seek to influence the awareness or perception of our target audiences or more likely, both.

24 We can plant a stake in the ground at Point A, where we currently are, and again at Point B, after some reasonable period during which time we market aggressively. The things we are doing to our marketplace through advertising, seminars, the Web, direct sales, etc., theoretically are influencing our audiences awareness and perception of the firm. At Point B we measure the difference to see what effect all of our efforts in combination are having.

25 We are not teasing apart each element we will use other means for evaluating the effectiveness of our individual tools but instead determining whether the net cumulative effect is achieving objectives of our overall strategy.

26 If our marketing is purposive that is, orchestrated in support of a strategy we can make a reasonable assumption that changes in awareness and perception relate to these integrated strategic marketing initiatives.

27 And although we have indicated why, given the way that law firms track and measure the elements of profitability, it is impossible to measure ROI in a strict financial sense, we can see trends in the way our marketing is affecting bottom-line profitability. For example, if your firm has a net profit of x the year before you launch an integrated marketing and businessdevelopment program, and after marketing for a year, you have a net profit of y, you can posit that marketing has contributed to the enhanced revenue growth. But you cannot state with confidence exactly what role marketing has played because other factors intervene:

28 Hires the firm made Changes in the economy Better firm fundamentals leverage, collections, realization, utilization Volume of business Profitability of business More effective use of technology Raising rates and so on...

29 Moreover, the specific impact of institutional marketing may be blurred by a host of other exogenous factors client entertainment, media coverage of the firm, etc. that may contribute to changes in net profit without enabling us to pinpoint their specific influence.

30 That leaves us in need of ways to justify why we recommend certain expenditures certain marketing tactics over others. We call the tools we use to measure marketing value proxies for true measurement of ROI; but in an imperfect universe, proxies can be very enlightening to our firms in evaluating marketing tactics.

31 Before we discuss different kinds of proxies we can use to evaluate our marketing tools, let s also acknowledge that there s another fundamental reason why we do not attribute new business exclusively to marketing efforts (except in unique businessdevelopment circumstances), and therefore, why we cannot equate increases in net revenue to institutional marketing: that reason is called lawyers.

32 The nexus between new matter memoranda source-tracking questions and law firm compensation systems illustrates why measuring ROI in law firms is an aspirational venture at best.

33 Advertising is one law firm marketing activity for which a proxy can provide compelling evidence: eye impacts/impressions/circulation primary and secondary diorama traffic Knowing what your clients and prospects read, or where they travel, can be determined by research and enable you to state with certainty that your expenditure of $x potentially is reaching a certain percentage of your target audience. Build in response mechanisms.

34 Use software to track volume and nature of online traffic, measured before and after you redesign your Web site; measured before and after a postcard campaign to promote awareness of the site; tracking whether you have repeat traffic to sections of your site for which you have done other marketing (e.g., advertising, direct mail, announcements); tracking whether marketing causes changes in amount of time visitors stay on your site.

35 Business-development tracking: Tracking proposals and targeted marketing results Tracking impacts of team marketing on relationship expansion both dollar volume and number of services provided and on generation of new clients; can you demonstrate changes in revenue for practice groups, etc., with targeted marketing programs? Can you show a greater share of the client s outsourced legal budget? Can you show an increase in the number of new clients? New matters?

36 Media Relations Tracking We used to talk about column inches now we talk about the number of hits in target publications i.e., publications with desired readership

37 Assorted Promotional Activities Sponsorships increase in number of attendees as a result of marketing Attendance at seminars increase in decisionmaker-level attendees as a result of institutional marketing Requalifying publication subscribers

38 In short, don t overlook: Imbedded response mechanisms (e.g., Orrick recruiting game, ads inviting viewers to request something ) Your clients willingness to tell you how to market to them most effectively: ask them what they read, where they travel, in what format they prefer information, what valueadds they appreciate, etc.

39 Measuring changes in awareness and perception as an index of changes in gross revenue: How it s done What it costs When not to bother

40 Recommendations Consider the implementation of a quarterly TMR as a mechanism for reporting the status and value of the components of your integrated marketing program. Conduct periodic external market research to measure changes in awareness and perception. Conduct client-specific research to guide your marketing choices: your clients will tell you what adds value.

41 In Conclusion Market leaders are doing a better job today of integrating their branding and business-development programs than did first-generation legal marketers. That having been said, the bar was pretty low.

42 As marketers grapple with how to incorporate some sales model that is appropriate to firm culture, there will be increased emphasis on assessing the value of marketing.

43 Just because you can t measure ROI doesn t mean that you can t measure changes in awareness and perception and, as a result, make a cost-benefit determination of the efficacy of your marketing program.

44 Norm Rubenstein Zeughauser Group LLC 1545 Eighteenth Street, NW #804 Washington, DC (cell)