How Much Money Do Law Firm Owners Make?
If you are starting your own law practice – whether you are going solo or teaming up with a handful of trusted colleagues – this question has probably crossed your mind: how much money can you make at a law firm? While the figures vary across states and practice areas, Martindale-Avvo’s 2020 Attorney Compensation Report suggests that small-firm attorneys made an average of $210,000 per year in 2019.
To maximize your chances for success, however, you should set up your firm sensibly. Among other things, that includes choosing a good location for your new office, marketing your business, providing high-quality legal services to your clients, and keeping a close eye on your bottom line.
7 Ways New Law Firms Can Earn Consistent Income
Building a new business has its challenges, but you shouldn’t let that stop you from venturing out and starting your own law practice. Here are a few tips on how you could turn a profit as a law firm.
1. Start Thinking Like a Businessperson
You may be a highly qualified attorney, but running a law firm requires a whole different skill set. You have to educate yourself in business development, operations, marketing, sales, and management, to name but a few. You may not have to be an expert in all these areas as you can hire professionals as your business picks up. However, you should still have a good grasp of these subjects to ensure you can run your firm competently.
2. Pick a Niche Early On
Even in the startup phase, you should be thinking about the long term and how you could build a recognizable niche practice going forward. Narrowing down early on can help you focus your business strategy and marketing efforts and hone your expertise in one or two key areas. Providing niche services may also reduce the number of competitors, as you won’t be competing against all other law firms in your region.
When picking a niche, you should go for an area of practice that’s small enough to count as a niche but still big enough to bring in consistent business over time. A good place to start is your top ten client list. Look for any similarities that you could build a niche around. These could be:
- Specific areas of law such as criminal law
- Industry segments like IT outsourcing companies or healthcare practices
- Specific demographics such as the residents of a particular area or small-business owners
3. Rent an Affordable Office
It might be better to rent – at least in the beginning. New law firm owners often get hung up on the idea of setting up an impressive office as a way to look more presentable or professional to clients. While eventually you may need a larger space to fit your growing practice, you may not want to get a costly lease from the very beginning. Instead, it’s generally better to invest your startup capital in improving your service offering and assembling a highly qualified team.
4. Market Your Law Firm
As a business owner, you should prioritize generating and converting new leads. One way to do that is via marketing. There are many marketing channels you could explore, including:
- Search engine optimization (SEO)
- Pay-per-click (PPC) advertising
- Social media platforms like LinkedIn and Facebook
You don’t have to use them all. Pick three to five that work for you and focus your marketing efforts on them.
You may also want to consider hiring a professional marketing firm or an in-house marketing team. If you decide to go down that route, search for experts that specialize in marketing for lawyers and law firms.
5. Prioritize Financial Matters
Even if you are good with numbers yourself, you should hire a professional bookkeeper or accountant from day one. They can provide you with crucial support in organizing your billing and financial reporting, filing tax returns, handling the payroll, and more.
If you don’t know what a profit and loss statement is or how to analyze your cash flow, it’s also a good idea to read up on the basics of small business financing. This may help improve your understanding of how to manage your finances as a law firm owner.
There are also overarching trends to consider. For example, growing concerns regarding information security in an increasingly digital world may result in greater demand in data security and privacy fields. Changing legal regulations, such as the California Consumer Privacy Act, may also impact demand for such legal focus areas.
6. Track Key Metrics
To ensure the continued success of your law practice, you should keep a close eye on numerous marketing and sales metrics. Some examples include:
- Number of website visitors per month
- New leads (unqualified contacts such as newsletter subscribers) per month
- New prospects (contacts you have already qualified as potential clients, such as people who filled in your contact form with a specific inquiry) per month
- Conversion rate (i.e., how many leads became paying clients)
- Average cost per lead
- Client appointments per month
- Initial consultation show-up rate
- Average cost per client acquisition
7. Create Systems and Procedures
Set up written protocols for everything, including:
- Your law firm’s governance structure
- Decision-making processes
- Communication mechanisms
- Recruitment policies
- Staff training and continued education
- Casework and client care best practices
- Attorney ethical obligations
- Financial management
- Business analytics
Having well-established systems and procedures in place from the outset can help you scale more easily and spare you many headaches.
Bonus Tip: Consider Taking Out an Insurance Policy
Taking out malpractice insurance for small law firms is a must. As your business grows, you may consider purchasing a business owners’ policy (BOP) and as well. These can help protect your law practice from unexpected and potentially costly financial harm.
Making Money as a Law Firm: The Bottom Line
Generally, the sky is the limit when it comes to generating consistent income from your law firm – as long as you put in the work developing and growing your practice. Before doing any of that, however, you should think about protecting your business against potential liability.