Planning for 2009--know your numbers.

Hendrix, Mary

In a tight economy, it is imperative that time and money be spent on those actions that bring the highest return to an organization, while keeping in mind short- and long-term objectives. Because we are an evolving profession, legal marketers regularly have the task of not only creating value but also documenting the processes that the firm will use to determine benchmarks of value. Once the process for determining value is agreed upon, it is then incumbent on us to use that knowledge to plan future efforts with a focus on increasing that value on a consistent basis.

The Basics

One of the best ways to document our value is to provide regular reports to our clients (the attorneys) in terms they understand--money. In order to effectively create those reports, however, we must understand some basic financial terms and processes.

* General ledger accounts are accounts used to track expenses that are similar in nature (i.e., payroll, advertising, event tickets, client entertainment). Most law firms further "define" these expenses by coding each entry with established parameters being tracked by the organization, such as the office, practice group or individual that benefited from that specific expense.

Each firm creates unique "subcodes," also known as user defined fields, that track areas of interest to the organization. For example, my firm tracks office, practice group and requesting attorney as subsets of each general ledger item. So an advertising cost incurred in the Lexington office at the request of our corporate group would be coded: 59110-02-210-0000, where 59110 is the general ledger number, 02 is the code for the Lexington office, 210 is the code for our corporate group and 0000 indicates that there is no one attorney who benefits from the expense.

Reports can be generated based on each of the sub-codes identified.

* Return on Investment ("ROI") is a measure of the revenue or benefit received against the cost of an activity. Simply speaking, if you sponsor an event on "xyz" area of law and an attendee hires the firm for a project in that area, one could value the ROI as a ratio of cost of sponsorship versus revenue related to that matter. Obviously, other items such as brand recognition, attorney reputation and prior business relationship with the client factor into the calculation, but ROI can be a valuable tool when determining whether a firm should consider continuing or discontinuing a specific activity.

* Realization is a key financial term which must be considered when reviewing law firm revenue. Realization is a financial ratio used to compare the cost of producing something versus the final price paid for the unit.

When an attorney records time spent on behalf of a client, that dollar amount is viewed as "Work in Progress" (also known as WIP) on the firm's accounting system. Once that WIP is billed to the client, it now becomes Accounts Receivable due to the firm.

The Budgeting Process

A review of your historical expenses and the ROI for measurable activities are essential when building a budget for the upcoming period. Some ROI cannot be easily measured. For example, advertising in your weekly business publication creates brand awareness, but may not drive business to the firm. However, an upgrade to an industry page on your Web site that results in a 20 percent increase of traffic is an activity that should be considered for other sections of the Web site. Make sure, however, that the spike in activity is not because of other outside influences (i.e., a change in law or recent media coverage on the issue).

When assessing historical expenses, make sure to look at the costs from a variety of views. You should, if possible, look at the type of expense, the sum of expenses spent on behalf of a specific region and costs assigned to each practice group. And consider these numbers based against the firm's strategic plan and market opportunities.

For example, if your firm has committed to expanding its Houston office, dollars should be allocated for increased collateral, advertising and community sponsorships to increase the market's (and potential lateral hire's) awareness of the firm.

The current (and likely on-going) emergence of alternative energy markets warrants increased spending on energy practice groups with dollars being spent on enhancing the firm's public profile in those industries. Dollars should be allocated so that attorneys can attend industry conferences, the firm should sponsor industry focus groups and the marketing department should initiate industry surveys/ roundtables.

If a certain practice group has low realization, dollars spent on "delegation" skills training may be a solution (depending on the specific situation). Similarly, if your firm has a number of individual attorneys "targeting" the same company, consider training on effective team business development.

Finally, if a large portion of your marketing budget is attributable to sporting tickets, an evaluation of the clients and potential clients who use the tickets is in order.

The goal is to align dollars with activities and opportunities that will generate the highest ROI through a systematic approach to track and measure where the dollars are actually spent. Once you have a better understanding of how the marketing budget has historically been spent, you can then proceed with allocating market dollars on the efforts that achieve the firm's objectives (highest ROI). Resist the desire to add X percent across the board and to spend the money as requests and opportunities become available. Also, challenge the status quo on activities the firm has always pursued. While many will be valuable, it is important to review those activities for actual ROI and opportunities to change the use of those dollars. The dollars spent on the annual sponsorship of a Chamber of Commerce event may provide more ROI if used to fund a regional economic survey for the chamber (co-branded with the chamber, and disseminated through the media, focus groups and regional community forums).

Throughout the accounting period, remember to regularly compare your budgeted dollars against the actual costs. If an unforeseen opportunity arises, dollars will need to be real-located, unless a case for an increase in budget can be made.

Finally, it is essential to communicate your goals, objectives and rationale for realigning marketing dollars. Meet with the respective decision makers of each group affected and explain your reasoning for the changes. Be prepared to provide documentation that supports your recommendations, especially if it is a decrease--for example, provide an attendee list from that "can't do without sponsorship" that had two attendees at your table of 10. And most importantly, remember that good budgeting is one of the essential tools in your toolbox. A regular review of costs, ROI and market opportunities are essential tasks for the continued growth of our profession.

Mary Hendrix is the director of business development at Greenebaum Doll & McDonald PLLC, a 180 attorney firm. Hendrix can be reached at mch2@gdm.com or 502/587-3625.