If you’re thinking of writing a law firm business plan, which best describes your situation?
- You have owned your law firm for over five years, and do not have a written business plan.
- You started your own law firm and have some general notes, but not a plan tied to milestones, or achievements by date.
- You are getting ready to start a law firm, and are obsessing over every detail.
Typically, these questions describe the three types of lawyers I meet—only about one out of hundred will have a written business and marketing plan for their firms, complete with revenue goals and market research.
No matter where you are, it’s never too early or too late to put pen to paper and outline a law firm business plan. I know this because I too was an entrepreneur without a plan, working tirelessly with a few wins here and there, but nothing consistent that didn’t rely 100% on me to be there making it happen every day.
As a solo or small law firm attorney, the stakes are higher. When something in your business goes sideways, it affects both your financial life and your personal life. You end up distracted or stressed when you should be having quality time with your kids, or enjoying a date night. And if you’re not caring for yourself, you won’t be the best possible advocate for your clients.
To avoid this situation, planning is essential. But where do you start? The following will help you create a personal, financial, and professional goal-oriented business plan for your law firm.
1. Define your success
The first and most critical step in writing a plan that you will stick to is to ask yourself, “Why do I want to own a law firm? What’s my definition of success?”
Having a law firm isn’t just about having a job (though some may choose to go the solo route for that reason). Owning your own firm has the potential to give you more freedom and bring more fulfillment into your life than you would find elsewhere. In theory, you’ll have more control over your income than you would if you had a salaried associate job elsewhere.
Ask yourself these questions to get started:
- What would make you happy? Seeing your kids at night before bed, vacationing twice per year, buying a new house, or moving out of the neighborhood you’ve been in since your first law firm job?
- What sort of house do you want to live in, and where? What are living expenses like in this area?
- What about your children’s education? Will you want to help them with college tuition fees?
- What type of lifestyle do you want when you retire? Do you want to be able to travel?
Answering these questions can be more difficult than you think, but without clear goals for why you want to run a law firm, investing in this dream would feel misguided at best.
2. Consider (honestly) how much revenue you’ll need
Now that you have an idea of your personal and financial goals, you’ll need to calculate how much annual revenue you’ll need to cover those things—and more. (Hint: This number should scare you!) We’ll update this revenue goal as we start to consider marketing and operating costs for your law firm, but for now, it’s prudent to start with a realistic ballpark of how much revenue you’ll need.
I can’t tell you how many times I’ve heard a lawyer say, “I’d be happy with $150,000 per year.” $150,000 isn’t a small amount of money, but after you factor in life expenses such as saving for retirement, vacations, college funds, home repairs, vehicles, braces, emergencies, etc., that number gets eaten away quickly. More importantly, there’s no extra room for investment in hiring or marketing to grow your law firm.
Be generous when estimating the costs of your goals, and write down a number that scares you. You’ll be much better off planning with that number in mind from the beginning.
3: Determine how many cases you need to meet that revenue goal
If you are only doing two or three cases per month, the number you came up with above might look outrageous. I can assure you it’s not. For example, let’s use $250,000 a year in annual revenue as our goal.
$250,000 per year in revenue = an average case value of $5,000 = 50 cases per year = ~4 cases per month
$250,000 per year might seem crazy if you’re only doing a couple of cases per month, but keep in mind that you’re not expected to get to this number in thirty days. You’re going to gradually work up to it.
The number of cases you’ll need may differ depending on your location and practice area, so do your research to make sure you come up with a case goal that’s realistic (even if it still feels like a stretch).
This brings us to the next part of your business plan—marketing.
3. Outline a marketing plan—and a budget
Doing a bit of preliminary market research will go a long way. Look at bar association listings to see how many other firms in your area offer similar services. Is there high demand for what you’re offering? If not, how can you ensure you stand out to potential clients? This will greatly inform the messages and mediums you choose to use in your marketing efforts.
Your marketing needs will be different depending on the current stage of your law firm. If you are just getting started, then marketing for you might mean a lot of hustle—working referral relationships, identifying groups which you can get in front of for a speaking engagements, blogging, and using social media to get your name in front of potential clients.
As you grow (or if you have existing marketing in place) you should be able to estimate the number of cases you will bring in through each channel. Then, you can quantify your marketing cost per case by dividing the total cost of that marketing effort by the number of cases you got from in.
For example, if you’re the only corporate lawyer in a small town, you’ll need to spend less on advertising than a family lawyer in a larger city.
Once you have an idea of the cost and effectiveness of your marketing efforts, implement a marketing tax on yourself—a percentage that comes out of every single case fee you collect, and that gets invested straight back into marketing efforts. This is a simple way to think about how much you need to be charging to fuel your revenue goals. It’s also an easy way to scale and grow your marketing budget.
You can base this percentage on your marketing cost per case for each channel. Don’t be shy—this number can be anywhere from 10-25%.
Once you start mapping out this information, you’ll notice that a system starts to form, which connects your goals, the number of cases you need to bring in, the profit you need to make on each case, the money you need to re-invest in marketing, and the number of people or contract resources you will need to employ to keep growing.
It’s a cycle. As you increase your marketing efforts, you’ll get in touch with more potential clients. Handling these relationships well will lead to more clients retained for your firm, meaning more cases and more money in the bank.
4. Outline an operating plan—and budget
How much will it cost to run your law firm? You’ll need to consider a number of up-front and day-to-day costs, and account for these in your revenue goals. Here are a few examples of costs to include in your budget:
- Hardware (laptops, printers, scanners, office furniture, etc.)
- Office space (Will you rent, or work from home?)
- Malpractice insurance
- Staff salaries (Are you planning to hire an administrative assistant or paralegal?)
- Utilities (Phone, internet, etc.)
- Practice management software or other technology services
Once you’ve laid out all of these costs, take a second look. Are there places where you could reduce your operating costs, and in turn, increase your profit margins?
A difficult truth of running a law firm is that you need to ‘fire’ yourself from the jobs that rob your law firm of revenue. For example, when you decide to do the work of a paralegal, who can be paid $30 per hour, and your billable rate is $200, you are robbing your law firm of $170 per hour. You’re also robbing your law firm of the cases you would be bringing in if you executed that marketing campaign, or called a referral source.
While it may seem like you are saving money by doing all the work yourself, you may actually be holding your business back. Have you talked to a virtual paralegal to see how much they would charge you? Research a few options to ensure you’re running your law firm as effectively as possible, and that you have a plan to add on extra help as your firm grows.
There are plenty of tools you can look at to help streamline non-billable tasks and leave yourself more time to practice law. Be sure to look at these options and work them into your operating budget.
This approach will be key to scaling your law firm—there’s no way you’ll see continued exponential growth if you attempt to do it all yourself.
5. Take care of the nuts and bolts
Once you’ve got the meat of your business plan worked out, it’s time to put pen to paper. Your business plan should include the goals, marketing plan, and operating budget you’ve put together, but it’ll also include a few administrative points:
- Contact information. What is the name of your firm? Your contact information? Your office location?
- Business type. What sort of business entity will you be? For example, are you in a sole-proprietorship or a limited liability partnership? Make sure to research the options in your state or province before making a decision.
- Business description. What type of law do you practice? What types of clients do you serve?
- Insurance. Who will your insurance provider be?
- Finances. Do you have a business account? What shape are your firm’s finances currently in? This will tie into your budget and revenue goals.
Finally, make sure your business plan includes an executive summary. This is a one-page overview of all the key information in your business plan. Law firm business plans can cover a lot, so it’s worth having a high-level overview to keep things simple.
6. Calendar your profit
Once you have a clear plan,map out your goals on a calendar. I call this ‘calendaring your profit.’
Month by month, list your goals for revenue, number of cases, marketing campaigns that need to launch, and hires that need to happen to keep your firm growing while serving your clients well. This creates a constant reminder that you are responsible for executing the actions listed in each month in order to reach your end-of-year goals.
Even better, having your goals laid out will help keep you focused, even when things get a little crazy. Your goals might seem impossible up front, but setting out smaller milestones month by month can make it all seem more manageable. Before you know it, you’ll have achieved six months of growth by putting one foot in front of the other.
A law firm business plan: Key to your success
To operate without a plan is to create a situation where you have little control over what is happening in your business. With no goals to work towards, you’ll have no benchmarks to measure against.
Even if you have no idea whether the revenue goals you’ve calculated are realistic, a written business plan gives you a starting place. After your first month, you’ll know how realistic or unrealistic your goals are. After three, you’ll start obsessing over meeting or beating your goals. After a year, you’ll will be making decisions based off the goals in your business plan instead of on gut instinct—that’s a much better position for your firm to be in.
Remember that your partner, children, employees and loved ones are all affected by your business plans. Having a written business plan does two key things:
- It creates a concrete explanation and breakdown of why you need to work a certain number of hours this week.
- It keeps you accountable to your goals and commitments.
In fact, at How to Manage a Small Law Firm, we believe it’s important that our members share their business plan with their staff, spouses, and children. This is a scary moment, but remember that the people in your life want you to succeed! Keeping them informed will help them give you the support you need to do so.
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