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Chapter 3/6

Developing a Business Plan for a New Law Firm

How to Start a Law Firm

10 min read

Developing a Law Firm Business Plan

A business plan is the foundation for everything your business does. Without a solid foundation, your firm will lack direction from the very beginning.

A good business plan includes:

  • Vision and values: Create a picture of what you’re building and the rule to guide it. 

  • Goals: What you want to accomplish in the short and long-term.

  • Business Model: What you offer and who you offer it to.

  • KPIs: Clarify metrics that indicate success.

  • Competitive Analysis: Know the landscape. 

Vision and Values

We worked with a lawyer who was stressed out about his vision and values. He spent weeks on the assignment because he couldn’t think of a statement that would make his entire office happy. 

During one coaching session, he got that lightbulb moment when we told him that he was making too big of a deal of it. 

We told him to think about it this way: Your values are a living embodiment of the firm culture you’re hoping to create and the approach to work your team shares. They are the guardrails of your business. 

From hiring to client management to a marketing strategy, every decision you make comes from your values. 

Your values are typically 3-6 factual statements that are authentically you. 

Here are some tips on crafting great values:

  • Your values must concretely point to your business. You want achievable values that set your business up for success.

  • Your values must have actual meaning. Like the “be the best lawyer” example, you want to avoid the obvious. Sure, every firm wants to be the best. But what does your firm want to do precisely that sets you apart from the crowd?

  • Finally, avoid table stakes values. While honesty, integrity, and hard work are all good works that all companies should have, they have nothing to do with your specific goals vs. any other firm.

As an example, here are Lawyerist’s values:

Each of these represents the culture of our company (even “experiment like a lobster,” which describes our playful and out-of-the-box thinking process). We use these values for all of our decisions, especially hiring. When we evaluate a candidate, we study their fit: Are they open to experimenting? Are they willing to help us build an inclusive community? Are they eager to lean into candor and compassion?

Building your vision and values is an essential first step for your business. We can’t tell you how much easier other decisions will flow once you have these documented. You will make better decisions and alleviate some of the anxiety of decision fatigue.

Goals

When you’re first sketching out your law firm business plan, you may just have a goal of “get my firm up and running.” A good goal! But as you dream on your initial strategy, you’ll find it helpful to set some initial short-term excellent long-term goals. Yes, these goals may change as you learn and grow. But setting goals upfront will give you a path to start on.

Short-term goals

Look to your initial vision and values for your first goals. If you’re a family law firm that wants to do low-conflict divorces, you might have a client acquisition goal aligned with this.

For example, you could say: In the first six months of my firm opening, I want 50% of my new clients to be low-conflict separations and divorces. You’ll see this goal follows the S.M.A.R.T. formula: Specific, Measurable, Achievable, Relevant, Time-Bound. 

Another short-term goal might be systems-oriented: I want to get a client onboarding process written down and documented in my first three months. (If not implemented.)

Think through all the different parts of your business and see if you can achieve one short-term goal.

Long-term goals

Long-term goals can be a little trickier when you’re first starting. Thinking 1, 2, or even five years out might seem impossible. But this is where you can begin to dream a little.

A long-term goal might be that in 3 years, you want a staff of 5 people, a complete operations manual, X amount of new clients a year, and Fridays off each week. 

Remember, these goals might—and likely will—change. But give yourself something to work with in the beginning.

Business Model

One of the biggest perks of starting your firm is deciding your business model. You get to take everything you learned in school and working at other organizations and implement the parts you like—and leave out the details that stressed you out.

This is an excellent place to review your vision and values. Take the time to dream about this. This is often the most rewarding part for new law firm owners. With a smart strategy, you can build your dream firm.

Ask yourself:

  • What kind of place would I want to work in every day? 
  • What kind of clients do I want to serve? Who is my ideal client?
  • What type of pricing model do I want? (Read our Law Firm Pricing Guide.)
  • What kind of access to justice issues do I want to tackle?
  • What experience do I want my clients to have? How do I want them to describe my firm?

Key Performance Indicators (KPIs)

As you build your strategy, you want a way to measure your firm’s health. These measurements are called KPIs. They track goals in all parts of your business, from marketing to finances to client acquisition.

Measuring and monitoring your KPIs will allow you to:

  • Monitor the health of your firm. KPIs will enable you to see how well your law firm is performing. For example, KPIs make it easy to track your finances and how much your firm grows each month. They allow you to see problems and successes quickly to take action by creating new goals or redirecting your team’s efforts.

  • Simplify decision-making. Armed with the above information, you can make informed, rational decisions for everything in your business. You don’t have to guess if a decision is the right one. Instead, you can (and should) measure all variables to make the best decision for your firm’s future.

  • Track your wins. By tracking your KPIs, you track your wins. Monitoring law firm data makes it simple to incentivize your staff’s hard work. After all, when you meet your numbers, everyone benefits.

For example, we track our KPIs with a color-coded system.

Green means hitting our goal, yellow means we’re on the cusp, and red means not hitting the number. We track weekly, which means when something goes yellow, we can analyze and plan before it goes red.

And because we track weekly, a one-week red doesn’t mean an emergency. It means we need to take time to discuss, find a cause, and make a plan.

Types of KPIs for Successful Firms

KPIs can cover all aspects of your business, including your finances, client satisfaction, marketing, and business development. But keep in mind: As you start your firm, KPIs will be new to you and can feel overwhelming. Keep it simple in the beginning. 

Start by picking three business questions you want answered, find a way to measure that answer that you can track and update without too much work regularly, and start measuring. As you grow your firm, you’ll develop your KPIs.

Let’s look at some examples.

Financial

Want to increase your revenue or improve your law firm’s financial health? You’ll want to track some Financial KPIs, including (but not limited to):

  • Revenue (Cash collected)

  • Monthly Amount Invoiced to Clients

  • Accounts receivable (Amount clients owe you)

  • Budgeted expenses

Regardless of your goals, we recommend tracking some basic financial data to keep an eye on the health of your firm. Narrow your financial KPIs down to the top three financial numbers you need to understand your business for a quick win.

Client Satisfaction

Your clients are your most valuable assets. Firm success requires that you watch specific metrics involving your clients. 

Client satisfaction KPIs tie to several key law firm growth goals such as increasing referrals, increasing revenue (happy clients are loyal clients) and improving overall client experience. Examples of KPIs to track include:

  • Net promoter score (NPS)

  • Client retention rate

  • Speed at which you close cases

Your net promoter score measures whether your current or former clients would recommend your legal services to others. A satisfied client is more likely to do so. This metric is most often gathered using a survey at the final delivery of your services.

Other measures such as closing speed and retention can give you insights into how happy your clients are with your services. Do you have a lower NPS than you expect? Are you losing clients? If so, your client satisfaction is low, and action could be taken to improve it.

Marketing and Business Development

Is your current marketing strategy working? Without measuring KPIs, there’s no way of knowing. By tracking marketing metrics for your firm, you can see your marketing strategy’s performance and tweak where needed.

Some of these metrics include:

  • Organic traffic to your website

  • Number of leads generated

  • Conversion rates

  • Acquisition costs/return on investment (ROI)

For example, if you see your website traffic trending down, some fresh content might do the trick. Or, if you see low conversion rates yet high traffic, your website isn’t inspiring potential clients to give you a call. You might need to change your call-to-actions or refresh your website.

Marketing and business development go hand-in-hand, as they’re both critical to achieving long-term growth goals.

Some examples of business development metrics to track include:

  • Number of new clients each month

  • Competitor pricing

  • Sales cycle length

  • Number of leads that turn into consultations

Profitability KPIs and Law Firm Financial Ratios

Every law firm should have a documented long-term financial strategy and profitability model. Any healthy business has a written plan to forecast revenue, expenses, net profit, and cash reserves. To ensure you follow through with your plan, track your firm’s profitability and financial KPIs.

And where should you track these KPIs? Don’t think too hard on that one. At Lawyerist, we use a Google Sheets spreadsheet with a few simple formulas. Track anywhere that makes sense for your firm.

Competitive Analysis

Another element you want to track is what your competitors are doing. A competitive analysis forces you to define who your competitors are. This often gets lost in the shuffle of starting a new firm. Lawyers often assume as long as they practice law, there’s a market for what they want to do. Or they think they’re only competing against other lawyers when clients are often drawn to non-law solutions. 

These lawyers are missing a huge opportunity. They aren’t asking clients how they heard about their firm. They’re not trying to figure out what other solutions their clients tried first. 

Here are some tips for putting together a competitive analysis:

  • Make a list of competitors. Simple, right? List firms in your practice area/location, your jurisdiction, and who may be serving your ideal client base.

  • List the other ways your clients are solving their problems. Are they use an online service to create their will? Are they asking their cousin’s nephew’s wife, who once worked at a law firm in 1988, for advice? Get creative.

  • Do field research. Ask your friends, family, and current clients what they do when they have a potential legal problem.

Once you’ve collected the data, you can begin the analysis. Think about the strengths and weaknesses of each competitor and the solution you’ve collected. Compare pricing, accessibility, marketing messages, and client service. How does it all compare to your firm? What do you do better? What could you improve?

And keep in mind: This isn’t a one-time deal. You’ll want to stay on top of competitive solutions through Google or social media alerts or by subscribing to industry emails and newsletters. At least once a year, do a complete forensic competitive analysis to see where things have changed.

We’ll outline how to use legal technology successfully next.