What's in Your Budget? All Spending Should Advance the Firm`s Strategic Goals and Produce Measurable Results

03.15.03
By Deborah McMurray and Barbara Harrison Kaye
Published in Daily Business Review--Florida

If you focus your strategy, you can focus your spending. This basic business premise directs law firm leaders to invest resources only in those projects and programs that get them closer to their stated goals—and suggests that they should eliminate the practice of throwing dollars at anything that doesn’t. If it’s this simple, then why do law firms continue to invest time and money in initiatives that have no hope of returning a single dollar?

There are dozens of reasons for this spending behavior, but these expenditures generally fall into two major categories: (1) sacred cows and ego-driven outlays and (2) not understanding which marketing initiatives actually move a firm closer to its goals and how to budget for them.

In today’s uncertain financial climate, many firms are trimming costs by engaging in wholesale cost-cutting—slashing percentages across the board. While this approach is popular, it isn’t a wise business practice. Instead, firms should hunt and slay sacred cows—those costly items that aren’t providing value—and eliminate ego-driven spending. This approach is tough because it requires senior lawyers to reconsider the value of their own pet projects.

To identify the sacred cows and ego-driven activities, look for the lollapalooza events that make the lawyers feel good, as well as copy-cat initiatives. (This is when another lawyer or firm’s strategy is driving your choices and spending.) Significant money can be saved by starting here. Then reallocate the rest of your marketing money more strategically.

The Right Marketing Budget Format

Much has been written about the marketing initiatives that can add to your firm’s bottom line and top line—client loyalty programs, client and industry teams, positioning strategy, strategic PR, etc. But little attention has been devoted to the marketing budget as a planning tool and the significant role it can play in guiding and supporting firm strategy.

There are several budget formats that law firms use—all have advantages and disadvantages. A fundamental rule of marketing budgeting is that it must be originated by your senior marketing leadership, not your accounting department.

Centralized firmwide budget.

This works well for firms of all sizes. Managing your money in one place has obvious advantages. The marketing department has more control and guidance over where the money is spent; therefore, it ultimately has more responsibility and accountability. In addition, a centralized budget makes it easier to track and build spending trend reports by activity, as well as by client, lawyer, practice or industry, and office. When you can track client growth and contraction, you can identify which marketing investments are working and which aren’t.

Disadvantages. If spending discipline historically has been lacking, lawyers may object to a firmwide budget that operates outside their control. Practice leaders and office managing partners want the freedom to control the money that is "allocated" to their offices and practices. Lawyers also may regard the centralized budget system as a form of policing their marketing choices (and it is). Finally, managing a budget in the multi-millions could be close to a full-time job for a senior marketing manager.

Budget by office/practice/industry.

Large, multi-office firms with international operations often prefer to manage marketing dollars this way. Practice leaders and office managing partners have greater spending control, and the cost and success of initiatives can be directly tied to the groups that sponsored them. Forward-thinking firms allocate extra marketing dollars to the most profitable practice or industry groups or to those with the greatest long-term potential.

Disadvantages. Allocation is a political hot potato in this structure. Since the most profitable groups have an opportunity for greater reward, the partners in the offices and practices that are viewed as "less equal" can feel disenfranchised. These partners may argue that they aren’t as profitable because don’t enjoy the same resources as the "more equal" groups.

To avoid this us-and-them distinction, some firms allocate the same money to each group, regardless of profitability, relevance to firm clients, or potential growth. While, in the short-term, equality may keep your partners happy, over time this egalitarian approach simply dilutes the effectiveness of your overall marketing investment.

In this budget structure, the outcomes are harder for the marketing department to manage and measure. Unless there is a capable marketer in each office (or assigned to each practice group), it’s difficult for the often long-distance CMO or marketing director to track the results of various initiatives. Presumably, at the end of the year, the senior marketer is still accountable and responsible for marketing results. However, being held accountable without the opportunity to control the process and choices that lawyers make, is frustrating and defeating.

Finally, and perhaps most important, allocating money this way can diffuse firm strategy. The result is that spending choices are made that don’t get a firm closer to its goals. This failure must be acknowledged when, at the end of the fiscal year, firm leaders ask, "How have we done?"

Zero-based, strategy driven budget.

In its simplest form, this is a budget that starts with zero and ends with a dollar number that is tied to initiatives that support specific strategic goals. This approach works best for top-down firms, rather than those that manage by consensus, because it starts with the objectives of your leadership team. As priorities change from year to year, so do the spending patterns and choices.

A zero-based approach ends perpetuity and entitlement spending. The categories soaking up these dollars, and their mythical returns are simply eliminated. Every major initiative of a client team, an industry team, or practice group requires pre-planning. The team establishes its business case, outlines the hoped-for firm and client benefits, discusses the follow-up plan, and projects the return on investment. Only after the plan is reviewed and approved by the senior marketing staff and/or firm leaders, does the request receive funding. After the event or project is completed, and also at year end, results are analyzed, adjustments made, and a determination is made to continue or discontinue funding in future years.

If firms want their marketing leadership to lead, it’s important that the senior marketers have permission to say no to lawyer requests that don’t support firm strategy. Zero-based budgeting offers a basis for this analysis. If a request for marketing money doesn’t get the firm closer to its strategic goals, even if it’s a swell idea, firm marketers and leaders should say no.

Finally, this budget structure invites periodic, if not continual, review of the firm’s strategic plan and goals. This disciplined review is necessary as the economic climate and your clients’ businesses change. Few firms build this evaluation into their day-to-day operations. The strategic plan should be a living, breathing guide that is always current.

Disadvantages. Zero-based budgeting requires marketers and firm leaders to be 100 percent disciplined. Simply put, without a strategy and plan, projects don’t get funded. (To accommodate the wacky and spontaneous yet brilliant idea, add a budget line item called "the bucket." This smallish number funds last-minute, urgent projects that are worth doing or that may have a client-invoked priority.)

Many senior lawyers and rainmakers are used to having large pots of money to spend as they please. If the marketing staff is perceived as taking this freedom away, they will become the fall guys. They will need leadership intervention and support to persevere and thrive in this new, business-oriented way of managing marketing dollars.

Finally, the marketing staff must be adept at strategy, planning, and analyzing marketing metrics. But this role belongs not just to the CMO or marketing director, but to all marketing managers of groups, projects, and campaigns.

The Perfect Structure

Picture a pyramid. Strategic plan outlining vision and goals resides in the top level of the pyramid. Down in the second level, we have the strategic marketing plan, which identifies targets, new markets, positioning strategy and key messages. Third from the top is the marketing operations plan, which identifies action items and ways to get there with dollars, timing and responsibility defined. Finally, the fourth level (the bottom) is where the marketing budget lives. When strategy drives budget setting, it’s easy to spot trends, track results and adjust when priorities shift.

According to the Legal Marketing Association’s 2001 research study, firms spent an average of 2.4 percent of gross revenue on marketing. What’s included in this number varies dramatically from firm to firm. Anecdotal evidence suggests that firms pared down their marketing budgets in 2002, and many firms are cutting back even further this year. Instead of cutting costs across the board, wise firm leaders will carefully articulatefirm goals and allocate the appropriate dollars to meet them.

At the end of 2003, firm leaders will ask: How has marketing gotten us closer to the goals stated in the strategic plan? If the marketing department and its budget are properly organized, the department can track increased revenue, higher profits, greater client share and market share, and reduced frivolous spending. Most firms with sophisticated accounting systems have the ability to track this data. But unless spending is tied to strategy, the data is meaningless.

Deborah McMurray is a strategic marketing consultant to the legal industry and a former law firm marketing director. She can be reached at 214.351.9690 or mcmurray@contentpilot.net.

Barbara Harrison Kaye is chief marketing officer at Thacher Proffitt & Wood in New York. She is a Fellow of the College of Law Practice Management of the American Bar Association. She can be reached at bkaye@tpwlaw.com.

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