Quick quiz: check all that apply.
Every dollar you spend on advertising must generate the following:
- _____ One dollar in revenue
- _____ Two dollars in revenue
- _____ Ten dollars in revenue
- _____ Ten dollars in profit
- _____ Two dollars in profit
Take note that I switched from “revenue” to “profit.” Revenue is the top line. Profit is the bottom line. Profit is what’s left over after you pay for everything: the ads, the rent, the staff, the computer, and everything else.
The Answer Key
So what’s the right answer?
Number one is the answer I get most often. Sadly, number one is definitely wrong.
The numbers don’t add up. If you spend a dollar and bring in a dollar, you’re back to zero. Unfortunately, you haven’t yet paid for delivering the service. You haven’t paid for your time, your office, your copy paper, etc. You’re working for free. In fact, you’re losing money.
If you view the world from a number one perspective, you’ll quickly go broke. You’ll bring in a dollar and spend more than a dollar doing the work. With each new dollar, you get deeper in the hole.
“But I’ll make it up on volume,” he said. No, you won’t. You’ll lose it faster with volume. Look, I know there isn’t any math on the LSAT, so you’re going to have to trust me. Spending a dollar to bring in a dollar is a bad deal no matter what the guy “selling leads” on the phone says. Don’t do it.
Number two is probably wrong as well. Most lawyers can’t deliver two dollars of service for the one dollar left after paying for the ads. They’re probably losing money too.
I can live with numbers three, four, and five. Any of those answers earns you a gold star today (you can trade your star for special rewards at the prize booth around the corner).
How to Earn a Gold Star
Be aware, however, that number three is a correct answer under limited circumstances. It’s a correct answer if you can deliver the service for less than nine dollars. If it costs you more than nine dollars (exclusive of the advertising cost) to deliver that for which you were paid ten dollars, then number three is a wrong answer. Got it? Good.
Number four is a dream come true. Spend a dollar for advertising, charge the client for the service, pay the associated costs, and be left with ten dollars of profit. That’s a profit machine. I don’t know many firms achieving that level of return on their advertising investment.
Number five is closer to reality. In an ideal world, you’ll be in the zone of spending a dollar to generate twenty dollars in revenue. Your business model should be optimized to consistently produce a profit even with five percent of revenue spent on advertising. You spend a dollar, collect twenty dollars, pay for the work, and have three dollars left in your pocket. I’d do that all day.
Let’s take number five a bit further. Let’s spend $10,000 a month on advertising. It generates $200,000 in revenue. You watch it happen from the deck of your beach cottage (meaning you’re not the one doing the work). The bank transfers $200,000 to your account each month.
So we’re clear, let’s watch that again in slow motion:
- You buy the ads for $10,000.
- The clients call and schedule consultations.
- They hire your firm.
- Your people deliver the service.
- The clients are happy.
- The client’s bill is paid in full (total of $200,000 for the month).
- The law firm expenses are paid, along with the $10,000 advertising expense, leaving $20,000 in the law firm account.
- The law firm sends you a check for $20,000.
Where are you in this slow motion movie? You’re on the beach sipping a drink under your umbrella. However, if you’re at the office doing the work, then you’ve got to account for that—financially—in your formula. If you’re doing the work, you’ve got to be paid. You become part of “the law firm expenses” and need to be compensated. You can’t treat your work as free, or the whole system breaks down. You are an expense if you’re doing the work and that expense is not discussed as “profit.” Got it?
Tweaking the Formula
Many firms spend less than five percent on advertising. Some firms spend many times more. It doesn’t matter how much you spend as long as you have a replicable, reliable, consistent formula for generating profit.
Put the money in and take the money out. Your job is to tweak the formula and experiment with new and different approaches to create an ever-higher return on investment. Once you tweak your formula, you’ll know the exact answer to question from the quiz.
