Is Marketing & Business Development Key at Law Firms?
A summary of a survey by Baker Tilly Berk in association with iGrowthLegal on innovation, growth and business development at the Top 50 Law Firms in the Netherlands (edition 2015-2016).
Note: Survey edition 2016-2017 will follow In Q4 2016 and we will extend this survey to Europe and the US.
Law firms are optimistic about the near future. Supported by improved sales developments over the past two years, a majority of the firms expects an increase in sales in the next two years. This is shown by research of Baker Tilly Berk in association with iGrowthLegal, for which over 60 law firms were approached.
Since 2008, the wheels have been getting more and more stuck for numerous law firms. Large and medium sized firms, normally used to annual growth rates of approximately 5%, have been noticing a serious flattening of the growth since the end of previous decade. In 2013, the top 50 law firms even dealt with shrinkage. It became clear that with standard measures like cost reductions the tide could not be turned. Since that moment, innovation and business development have been – more than before – important topics for many firms.
The sights on growth
It seems that after a period of gradual deterioration until 2013, since two years one can speak of a slightly more positive situation for law firms. Almost half of the participating firms (46%) achieved an increase in sales. Yet not for everyone the problems were solved: 19% of the respondents was dealing with a sales decrease. Over a third (36%) saw its sales stabilize over the past two years.
However, fact for everyone is that the upcoming two years can be welcomed with open arms. Over two third of the respondents is expecting to achieve a sales increase in the next two years, the remainder is counting on a more or less equal turnover. The current products and services will mainly generate the future sales. However at the same time over 40% of the respondents is expecting to be able to also generate sales with new products and services – product innovation.
Product innovation has prominently appeared on the agenda of law firm over the last years. Despite the fact that a number of firms (18%) admits that innovation does not play a role – their attention goes out primarily to serving existing clients with existing services – most law firms (82%) are well aware of the importance of innovation. At these firms, however, one cannot always speak of an explicit innovation strategy. Innovation, so they say, is mainly hidden in the creative solutions you offer to your clients on a daily basis (73%).
Over the past two years, 82% of the respondents has introduced new products or services. It is striking that 36% claims that the new products have appeared only limitedly, or even not at all successful. Accordingly, the challenge for the upcoming years is to put the focus on innovation in a more successful market introduction.
That innovation can be of great importance for the sales development, becomes clear by the fact that a quarter of the respondents states that new products and services generated the biggest part of the turnover in the previous year. At the same time, not surprisingly, for by far most of the law firms the current business makes the most important contribution to the sales number. A third achieved sales mainly with new customers. This is positive on the one hand: firms that succeeded in generating sales growth by bringing in new customers. But on the other hand, customer churn – many new customers with a constant turnover – can also be a possible explanation.
Successful innovation demands for clear insights in the needs of customers. The shyness to ask customers about their needs and their opinion – which was so characteristic of the legal profession – has been shaken off by the law firms. Almost a third conducts periodical customer (satisfaction) surveys. Over half of the firms states they are in dialogue with their customers on a continuous basis and as a result know very well their wants and needs.
Hence, measuring and managing customer satisfaction is for many firms now something well established. Of the surveyed firms, almost half has set up a structured process for this: a customer satisfaction survey is conducted periodically, or a call takes place after the completion of every assignment. A number of firms states they manage customer satisfaction through informal talks.
At the same time, still a considerable group (38%) does not actively measure and manage customer satisfaction. Of this group, approximately half indicates they will start doing this on short notice. The other half admits they do not measure customer needs and customer satisfaction, but that actually should be doing this. Hence, it is expected that measuring and managing customer satisfaction will be embedded within the legal profession, by which an important precondition for successful innovation and sales growth is met.
Customers are, increasingly, not settling anymore with billing by the hour and the associated uncertainty about the eventual invoice amount. An increasing number of law firms take a critical look at their pricing structure and the eventual price they invoice to their customers. The price is for over three quarters of the surveyed firms an important part of the growth strategy, but not the most important instrument. Two firms state that price is essential: they pursue an explicit pricing strategy to achieve growth.
A good price is mainly determined by a good and manageable cost structure. Therefore it is important that internal processes are organized efficiently and that no unnecessary costs are incurred. For that matter, sufficient honour was still to be won by law firms in the previous two years: 82% implemented process innovations resulting in qualitatively better and more (cost) efficient business processes.
In order to be able to offer customers a good prices, an increasing number of law firms turns to freelancers. Additionally, the rise of the college lawyer continues within many firms. Of the surveyed law firms, by now 19% is employing college lawyers, or uses them in the flexible workforce. Half of the firms currently does not have any college lawyers on the payroll, but is seriously considering this. Still not all of the law firms are enthusiastic about these lawyers: a large minority of 32% clearly speaks out against the hiring of college lawyers. They do not see any added value for the customer.
Something almost all firms do invest in is the hiring of marketing & business development employees. Of the surveyed firms, almost three quarters has one or more marketing employees on the payroll. When hiring and evaluating marketing employees, firms mainly pay attention to marketing expertise and whether the person in question can convince and inspire. Legal knowledge is hardly considered important and not a single firm sets a university degree as a requirement.
Additionally, firms work with external marketing advisors as needed: 68% turns to an external consultant from time to time. For 45% of the respondents it is the case that they even do so more frequently than before. Almost a third has never enabled external consultants, or at least does not do so anymore. This is mainly seen with small or even very large firms, with relatively large internal marketing departments.
Importance of marketing
Previous research shows that the importance of marketing within the advocacy has been steadily rising since the start of this century. Over the last two years, this trend has strongly persisted. Over half of the surveyed firms (55%) states that the importance of marketing has risen sharply over the last two years while over a third (36%) notes that this has somewhat been the case. For not a single firm the importance of marketing decreased.
Marketing and business development hence became more important, however this is not always expressed through the marketing budgets. At 36% of the respondents the marketing budget increased, while at half of the firms the budget stayed more or less the same. For 14% of the respondents it is the case that even less marketing budget was available in the past two years, than before. For the upcoming two years, all firms expect either a similar budget (50%) or an increase (50%).
When asked about the role of marketing within the firm, it appears that firms are looking differently towards this. Almost half (48%) thinks that marketing offers useful support with, among others, developing communication messages and preparing pitches. For 29% of the offices, marketing plays a crucial role in the commercial success of the firm. For a quarter, mostly small and medium-sized firms, marketing is still in its infancy. For these firms, the role of marketing still has to crystallize more.
Marketing & business development activities
Traditional marketing activities remain the most popular. Publishing in journals and public magazines (including online) and speaking at seminars and congresses is being done by approximately 90% of the respondents. Also sponsoring and organizing relation events are popular (82%). Content marketing has, within a few years, acquired a very prominent role in the marketing mix of law firms: 82% states to use content marketing. Firms are satisfied with the effect of content marketing: 64% notes that content marketing is an effective means to bind existing customers and attract new ones. The majority (57%) does not do this, but states that they have a fairly good image of what does and what does not work. Almost a third (19%) does not measure the effect of marketing actions at all. On the area of marketing accountability there is still much to win in the advocacy. Telemarketing and ‘cold calling’ are not very popular with lawyers. Of the respondents, 9% states to have started working with this. These firms moreover have good experiences with it. They think that telemarketing is one of the most effective ways to recruit new customers. Enhancing the online findability is something that is done by a large group of firms (59%). Here, the results are mixed: 36% of the respondents states that this actually yielded new customers.
Speaking at seminars and congresses is called the most effective marketing tool. It scores well on both winning new customers (64%) and binding existing customers (45%). Least effective are sponsoring and advertising. This is remarkable, because these activities are in fact done by a large majority of the respondents. Possibly firms are active with sponsoring and advertising because this contributes to an increase in the brand awareness, but they do not believe that this directly yields new assignments or customers.
Most firms are not measuring the effectiveness of marketing tools.
Almost a quarter of the firms did design methods to measure the effectiveness of marketing efforts. The majority (57%) does not do this, but claims they have a fairly good image of what does and what does not work. Almost a fifth (19%) does not measure the effect of marketing actions at all. Hence, on the area of marketing accountability there is still much to win in the advocacy.
Without a good internal organization, including motivated employees and smoothly operating (supportive) processes, firms will not be able to live up to the promises to the customer. Therefore we asked the participating firms how they have currently organized their office.
An important development of the last 15 years is the role of the office director within the law firms. Over half of the surveyed firms (54%) employ an office director. Almost a third states that they are not employing an office director and are also not planning on doing this (in the near future). A small group (14%) is going to recruit an office director for the first time.
About the role of the office director, firms are fairly unanimous. He or she has to give lead to the internal organization and help to develop and implement the business strategy. The position of the office director differs considerably.
At some firms, he or she is a member of the board, however in almost all cases being on the payroll. At other firms the office director is above all a desk manager, that makes sure that internal processes such as IT and facility services are operating smoothly. In case there is no office director, the control over the internal organization is in most cases put into the hands of the managing partner or one of the partners/directors.
Law firms realize like no other that the quality of their services is determined by the quality of their people. That is why there is a well-established prominent role and ditto budgets for recruitment. But also the retention of staff is receiving more attention. This expresses itself through for example measuring employee satisfaction: 32% does this in a structured way by means of a periodical employee satisfaction survey: the largest group (36%) does this by means of formal or informal conversations with employees. Almost a quarter of the firms search its own heart: there is no insight in the employee satisfaction, whereas this actually should have been the case.
The legal profession in The Netherlands again shows a more positive image, after a number of tough years. The sights are set on growth. Sales expectations are positive. Marketing and business development more and more grow into the capillaries of the lawyer. For the upcoming years, we expect a further professionalization. Law firms increasingly see the need for innovation of products and services. Even more than before there will be invested in knowing the customer. Also a critical evaluation of the marketing mix – focusing on deployment of the most effective tools for client retention and winning new customers – is obvious.
The development of law firms towards commercial, innovative and customer-oriented organizations will as a result continue unabated.
About Baker Tilly Berk Business strategy
The research ‘Innovation and business development in the advocacy’ is performed under the leadership of Barend van de Kraats, Head of Business Strategy at Baker Tilly Berk. Baker Tilly Berk advises customers in various sectors and has a special focus on B2B and business and financial services.