There are reasons most law practices fail, even those that appear to be successful for the lawyers that own them. It’s not bankruptcy. It’s not the sudden loss of a partner or leader. Nor is it fraud or wrongdoing. It doesn’t even look like a regular business failure. Failure, defined simply, is not accomplishing an aim or purpose.
Law Firm Profitability: 4 Warning Signs of Slow Failure and How to Fix Them
Here are the four major warning symptoms of slow failure for law firm profitability, how you can spot them, and what you can do to turn your life and law practice around.
#1: You take whatever client walks in the door on a one-off basis
A “door lawyer” is one who takes whatever walks in the door. You do it because you think it’s what you have to do to keep your firm alive. The truth is, if you’re a door lawyer, you are doing the exact opposite of what you need to do to have a thriving practice.
You can’t possibly have any systems. You likely don’t have a team (or, if you do, you’ve got high turnover because it’s nearly impossible to train and retain team members without systems), and you are continually starting every month over at zero.
Greetings, Door Lawyer! Welcome to Stress City.
When all you do is create one-off wills and trusts for families, or entity formation documents for business owners, or handle a one-time divorce, or a single contract review, or one immigration matter or bankruptcy, or [fill in the blank with your one-time transaction] you must know you are leaving significant amounts of impact and income on the table.
You are stuck on the cash flow roller coaster and the marketing treadmill of dread (if you are even doing any marketing).
Here’s the biggest problem with this insidious set of symptoms: the mentality that you think you need to compete with other lawyers in your town, or with online automated services, is the exact mindset that will keep you stuck right where you are. And here’s how to remedy that:
Stop waiting for whatever comes in the door, and become THE go-to lawyer in your community for a particular type of person who needs and wants to hire you.
Then, shift your thinking so you realize that the first thing a person comes in the door for is just the beginning of a lifetime relationship, which will pay you dividends in perpetuity. Read more about why
Why Great Lawyers Don’t Accept Every Client Who Walks Through the Door here.
When you make this shift, you are no longer competing. Instead, you will set yourself apart entirely from all other lawyers in your community as a trusted advisor.
When you serve as a trusted advisor to business owners or to families in your community (think of yourself as a consigliere), clients will no longer see you and your practice as a faceless document factory that they can comparison shop based on price. When people in your community truly know you have their best interests at heart, your clients will treat you like a partner in their families and businesses.
When that happens, you are no longer competing with automated online services or other general firms in your community.
- You will command higher fees that your clients are happy to pay.
- They will refer all of their friends, family, clients, and colleagues, significantly decreasing the energy you must put into marketing.
- Your clients will hire you repeatedly, increasing the average lifetime value of each one of your clients, making each marketing investment pay off many times over.
- You will love practicing law again.
If you are taking whatever comes through the door or doing just one-off transactions with your existing clients, stop the bleeding, and shift the way you practice law going forward so you never have to compete with technology or cut-rate lawyers ever again.
#2: You don’t invest wisely in marketing because you don’t understand your numbers or the way you are marketing is wasted energy, often even marketing for your competition.
The world-renowned marketing coach for small business owners (and one of my former personal mentors) Dan Kennedy, has a famous quote:
“Ultimately, the business that can spend the most to acquire a customer wins.”
Learning this from Dan Kennedy was a game-changer for me. I went from thinking about how little I could spend on marketing—to considering how I could invest than any other lawyers in my community on marketing.
And, I don’t mean just money. I also began to ask myself how I could spend more time, energy, and attention on marketing than anyone else.
This comes down to getting intimate with your numbers.
That can often be hard for lawyers to do. They didn’t teach it to us in law school, and if you are like me, you might have gone to law school because you didn’t like math.
But, once I began to pay attention to the numbers, I could see that before I spent another dollar or wasted another networking lunch, I had better change up my relationship with money math and start making better choices.
So I asked myself: “What would have to be true for me to get strategic about my marketing and want to invest in marketing the right way?”
When I took a good hard look at my numbers (and I had to get help to do this because I did not know how to do it myself back then), I saw it so clearly:
- I needed to have a system in place for engaging just about every person I talked with each month at an average fee of $3,000 each and I needed to talk to at least ten people a month.
- I couldn’t waste my time anymore speaking to people who found what I said interesting, but were never going to take action—and if they did, would end up hiring someone else.
- I couldn’t afford 2-hour networking meetings and handing out a bunch of cards.
- And, I couldn’t afford to spend all day in my office answering phone calls from opposing counsel, prospects who didn’t respect my time or weren’t going to move forward.
You can’t either.
You must start by having a system in place that guarantees you’ll engage near 100% of your qualified prospects. And you must engage clients at higher fees: between $3,000 – $5,000, paid upfront, every time.
That starts with you truly valuing the service you provide, knowing how to talk about it in your community, understanding how to package your services, and quote your fees.
And when you are successfully engaging every prospect at average fees of $3,000 – $5,000 each, marketing becomes a whole lot more interesting.
However, if you aren’t successfully engaging clients consistently, each dollar or hour spent on marketing or networking is do or die, and that’s terrifying.
I advise every lawyer: until you’re engaging at least 80% to 90% of prospects you talk with AND have a follow-up system set up to keep in touch with anyone not ready to hire you right away, stop investing any money on marketing, immediately. Learn the 3 foundations that you MUST have in place BEFORE you spend another dollar on marketing your firm here.
You can and should be using free resources to educate your community while you are getting your engagement rates and fees up and building your consistent communication system.
But until you’ve got systems in place, no more investing money in marketing! Instead, use your time and money to create replicable systems that will pay you back many times over.
If you want to grow a sustainable, healthy practice, you need to set up a consistent, predictable, reliable engagement system so that more than 90% of the prospects who call your office (or that you meet through networking or referrals) end up as paying clients. And you need to create packages for your fees and a fee quoting system that allows your clients to choose their own fee, how they work with you.
Understanding the numbers of your practice is a critical key to law firm profitability.
Once you know that you can engage just about every person you talk with at an average fee of $3,000 – $5,000, you’ll want to look at your numbers and determine exactly how many clients you want each month and exactly what you need to do each month to consistently bring them in.
In fact, putting money into marketing at that point is like putting money into a magic money machine that spits out $3-$7 for each dollar you put in.
#3: You’re trying to grow your firm out of revenue instead of strategically investing in growth
You’ve invested at least three years and anywhere from $20,000 to $100,000 or more to get your law degree. Me too.
Then, you get out of law school and either get a job with a 5 or 6-figure paycheck (most of which goes to taxes, insurance, and student loan debt) or you start your own practice, and likely you struggle every step of the way to do it.
People think lawyers are rich, but you and I know the truth—most lawyers aren’t making (or keeping) much money at all.
And how many lawyers do you know who are still saddled with huge amounts of student loan debt?
So, you try to scrimp and save, building your practice out of revenue as it comes in the door, and terrified to invest for growth.
I get it. I was there myself.
Three years out of law school, I had left the 6-figure paycheck to start my firm. My husband and I had no savings in the bank at all, and I was the sole income earner.
I didn’t leave myself any choice—I had to make it work.
I was terrified to invest in my practice; I wanted to make it work out of revenue.
Fortunately, I got a serious wake-up call early on in my practice, and I saw that not investing in my practice would be the exact thing to force me back into a job and us into the poorhouse.
Until I had the first-hand experience of seeing that the right investments, at the right time, would earn me back far more than anything else I could do with my time and money, I kept trying to build my law practice by “spending” as little as possible.
Fortunately, I came to see that investing that money in my law practice wasn’t spending at all. It was an investment in freeing up my far more valuable resources—my time, energy, and attention.
Your time, energy, and attention are not renewable or infinite. They are your most valuable resources and when you use money wisely you are freeing them up to create far more. As a lawyer, investing in your practice to create a law practice you love that provides consistent, steady, and predictable cash flow does just that.
#4: You’re going it alone—without asking for support from a coach or mentor or leveraging economies of scale
As I was making considerable investments in building systems for my law practice and testing out marketing and hiring consultants and marketing firms, I remember thinking to myself, “What are you doing, Ali? These are huge risks you are taking just for your little old law practice.”
Then I realized, I wasn’t just doing it for me. No one should ever have to reinvent the wheel as I have. I decided to share these systems with other lawyers one day, so they can have the turnkey practice management system I wished I had.
Today that is precisely what I do, because I don’t want you to have to go it alone.
Running a law firm means you must think like a business owner—something we didn’t learn in law school.
This is where most lawyers I know get tripped up. We think our years of study, work ethic, and dedication to the field will be enough for our lives and law practices to succeed. Simply, not true. I cover more on why that is in this article: You’ve got a JD, not an MBA – No Wonder Building a Law Practice Like a Business Can Be Terrifying!
I couldn’t have survived without asking for help, and lots of it. Back then, when I tried to find other successful lawyers to learn from, what I found was even the most successful lawyers were operating in an outdated business model that didn’t truly serve them or their clients.
They looked successful on the outside. But inside their offices, they were just as nervous and scared about survival and finances as I was, AND they had to work 50, 60, sometimes 80 hours a week to stay afloat.
It wasn’t a life I wanted to create for myself, so I had to stop learning from the lawyers that were leading me down a path to exactly what I didn’t want.
So I looked outside the law business and hired the best business and entrepreneur coaches I could find.
Asking for help is what saved me.
I credit the business and entrepreneur coaching investments I made to turn around my law practice— from struggling and barely surviving, to bringing in a million dollars a year each year—within just three years of opening my doors.
The best part is that in my fourth year, I only had to go into my office 3-4 days a week, at most. And that freed me up to write the best-selling book on legal planning for parents and start doing lots of media to educate people about legal planning.
Going it alone is a huge mistake. You cannot know what you don’t know when it comes to building a successful life and law practice.
Curing these four symptoms and increasing law firm profitability is easy.
Find the people who have already done what you want to do and leverage their systems to create economies of scale. If you’d like to understand how New Law Business Model can support your specific needs and goals, and ensure that you don’t have to reinvent the wheel in order to build a law practice you love and can count on, book your call with one of our Law Business Advisors today.