How to manage client expectations in balance with a law firm’s bottom line
In all my dealings with lawyers over the years, I’ve found that there are two things that stress them out the most: time management and legal marketing.
Should you create a Facebook page for your law firm?
Is it worth it to spend $100 per lead on Google Ads?
Will lawyer directory websites like Nolo, ClearwayLaw, and Rocketlawyer deliver value for the time and money you put in?
The problem with this sort of thinking is that it focuses exclusively on lead generation, which is of course important, but not the be all end all for law firms and sole practitioners.
It incorrectly assumes that lawyers’ financial problems are rooted in visibility, or lack thereof, just because not enough people have found their contact information yet.
Most law firms, I’ve found, get plenty of people filling out their contact forms online or calling their reception desks looking for an attorney to help them with all manners of legal issues, whether they’re getting divorced or have just been fired from their jobs. But the problem for a lot of lawyers is how to go about setting realistic expectations with clients from the outset of the relationship. They need to be assured of your commitment and competence, for one, so that they are confident and happy to continue filling up their retainer as their legal matter progresses.
Attorneys often have to spend much of their days doing client consultations, inputting hours into billing management software (like Clio or Smokeball), while also attending court and producing legal documents for existing files. At the end of the day, the last thing they want to think about is writing a 1000-word blog for their law firm’s website for SEO purposes, hoping new potential clients will click on and read it before hiring the firm.
What got me thinking about this and motivating me to write this article was a post in the Reddit group r/LawFirm. The post was from an attorney who was asking about the best place to put his money, lamenting how he was spending so much money on advertising. He claimed that beyond his salary and expenses, there was no money left over after his advertising costs.
The attorney on Reddit said that his bankruptcy firm does well with pay-per-click advertising (like Facebook and Google Ads), but that it was eating up the bulk of his profits. He wrote that he produces blogs for his website but needed these expensive ads to drive the site’s traffic. As well, his bankruptcy law firm was unsuccessful with SEO-optimized content, so those pricey Google ads were more important than Google searches.
My experience with bringing clients into a law firm
I managed a law firm for a number of years, and having enough clients lined up was a common concern among lawyers at the firm. Once they closed a client file, they would wonder, would there be new work ready for them? Our law firm didn’t pay salaries, but rather paid staff on contingency, the lawyers keeping 70 percent of their receivables with the rest going to the firm.
When there was plenty of legal work to go around, the lawyers made excellent money. Assuming they could bill at $350/hour, and could collect on 15 hours a week, they would bring in $5250 a week, and keep $3675. If they kept this up for, say, 50 weeks each year, they could make around $183,750 in pre-tax income, which is not bad for a mid-career lawyer at a small or mid-sized firm.
But while individuals could make ends meet as long as clients kept coming, the numbers were much more challenging for the firm itself. The law firm provided marketing services, office space and technology for the lawyers on staff. Out of its cut, two thirds would go to expenses, and the remaining 10 percent was pure profit.
So when a lawyer brought in $5250 in a given week, the law firm would get about a third of it, or $1575. Meanwhile, 20 percent of that would go to expenses, leaving only 10 percent for profit, or $525. Assuming the lawyer works 50 weeks (at a full workload), the firm would bring in $26,250 per year in profit per full-time lawyer.
Assuming we kept 10 lawyers busy full-time for 50 weeks a year, we made $262,500 a year in profit. Not bad, but certainly not a get-rich-quick situation. And of course, this money was divided among the law firm shareholders, while also being subject to taxes and other deductions.
But it was all doable and success was contingent upon assuming our legal marketing efforts were largely successful in bringing in clients. Ideally, those clients would sign retainer agreements, hand over a cheque, and stick around until the completion of their legal matter.
Legal consultations don’t always go the way you want them to
Of course, this wasn’t always the case. Sometimes clients would sign the agreement and then disappear, or a client would provide an initial retainer or flat fee payment, and then the matter would progress and require more money on their end.
For example, the firm I managed handled shareholder disputes. Clients would often be unrealistic when they attended the initial consultation, trying to convince both the attorney (and probably themselves) that their issue was an uncontentious legal matter. People would say, “both my ex-business partner and I are completely in agreement on the terms, and we just need an attorney to create a legally binding settlement agreement.”
So, then the client would sign a retainer and provide the money to cover the settlement agreement. Our lawyers would then craft the agreement based on the terms the client claimed had been agreed upon. For example, one client was going to buy out their partner for their stake in a company for $500,000. The lawyer, on the client’s instructions, would then send the agreement to the other side, telling them to get their own legal advice, and then hopefully sign the deal. Sounds straight forward enough, right? Wrong.
Asking the client to touch up their retainer
After that, we were met with radio silence. We heard nothing for about two weeks and then received a strongly worded letter from the law firm acting for the other business partner. Their client apparently didn’t agree to any of the terms, even though we were told the exact opposite by our client. Of course, this meant that litigation was now likely, and that our client had essentially wasted their $3000 on having us draft the agreement.
At that point, our lawyer wanted a $10,000 retainer, and the client wasn’t happy. That’s why a big part of legal marketing isn’t just getting people to fill out your firm’s contact form, but also educating them about civil procedure. The happier the client, of course, leads to better reviews on Google, Avvo, and Clearway Law.
Online reviews can make or break any business these days, but for law firms especially, a better way to advertise is explaining how your firm can save people money and avoid potential cost overruns beyond an initial retainer. For example, explaining how your firm pursues the most affordable options first (settlement, mediation), and if that fails, how you are prepared to push forward with litigation (arbitration, the courts.) Explaining that litigation is very expensive is paramount and providing this education will undoubtedly bring in higher-quality clients with realistic expectations.
While I’ve attempted with this article to explain the unique problems associated with managing a law firm’s sales pipeline, my next article will cover what you should do to bring in a steady flow of paying clients to increase your firm’s revenues and overall visibility online and in real life.
Alistair Vigier is the CEO of Clearway Law, a company with lawyer directories in multiple countries. His videos on YouTube generate hundreds of thousands of views, and his law blog has over 110,000 monthly readers.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organisation, Portfolio Media Inc., or any of its respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.