ALA Media has released a report, An Analysis of Advertising and its Effect on Law Firm Revenue Growth, which is downloadable via its website. It states

Firms That Make A Commitment To Advertising Have Higher Growth Rates. Using the rigorous definition of advertising, the 87 AmLaw 200 firms that spent at least $10,000 in advertising in any three of the last five years have an average Compound Annual Growth Rate (CAGR) in their gross revenues that is 2.2 percentage points higher than their non-advertising counterparts (9.3% vs. 7.1%).This pronounced gap in CAGR translates into substantial revenue differentials over the five year period . And, the 42 firms that spent at least $50,000 in advertising in at least three of the last five years had even stronger growth rates than the firms spending at the $10,000 level (9.8% vs. 9.3%) .

I tend to be skeptical about studies that claim that a firm’s growth is directly related to how much they’ve spent on advertising. To me, this survey screams the mantra repeated to me so many times in my statistics classes “correlation is not causation”.

The study takes into consideration gross revenue, but there are a number of things it leaves out (or perhaps the write up leaves out) such as:

• how many lawyers are at each firm? Can the fact that firms have more lawyers and add more lawyers each year account for the growth?
• how much each lawyer brings in per person
• how much repeat business the firm gets (I would tend to believe that current clients would be uneffected by advertising)
• what types of other promotions the firm does - do its lawyers speak? publish articles? network in the community?

I would also argue that since the study was conducted by a magazine publishing company, which I’m sure makes a significant amount of revenue from advertising, providing stats that the more you spend on advertising, the more your firm will grow is in its best interests.

While I don’t have a comparable study, I will mention the AM Law Profit Per Partner Chart, which, if I’m looking at that right, only 1 firm in that top 10 (Kirkland & Ellis LLP) are listed as spending more than $10,000 in advertising in at least 3 of 5 years.

In addition, of the firms that spent $100,000 or more in 3 of 5 years, only 4 make it into the top 50 on that list. Ropes & Gray LLP debuts at 36, Jones Day and Proskauer Rose tie at 37, and Orrick, Herrington squeezes in at 49.

Now, I’m not saying that advertising your firm won’t grow your business. I just am a bit skeptical that this is the study that will prove advertising is the end all, be all of marketing. How successful your marketing is depends on which metrics you pick

I could have just as easily looked at “Rank By Revenue Per Lawyer” or “Change In Profits per Partner from 1998″ and maybe the results would be different. You must establish what metrics are applicable to your firm and measure your firm by them. Gross revenue might not be the most effective.

In my experience with marketing smaller firms, unless you’re offering something of value that you give away free (like a booklet or tip sheet), advertising isn’t all that effective - and what small firms have the money to spend $100,000/year on advertising? It’s difficult to stand out from everyone else, but one of the best way small firms can stand out is by marketing their knowledge and expertise. To put it slightly different, most people don’t do business with law firms, they work with lawyers. If they like you, trust you, and believe you can do what you say, they’ll choose you.

Found via Larry Bodine’s Blog

Update: Tom Kane of Legal Marketing Blog is also skeptical.

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Categories: Stats/ Trends