Developing a Business Plan for a New Law Firm
How to Start a Law Firm
10 min read
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A law firm 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:
We worked with a lawyer who was stressed out about his vision. 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. You don’t have to create the most amazing vision that perfectly captures everything you are hoping to build. You do need to start mapping out what you are (and aren’t) trying to create.
Picture these two lawyers:
Neither vision is wrong. But, how each lawyer will make decisions to build a profitable business will look very different. You need to get a sense if you are trying to build something that looks more like Lawyer 1, Lawyer 2, or Lawyers 3-8. Get it?
Jot down thoughts now so you know where you’re headed and can start building the guardrails for future decisions.
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:
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.
One of the biggest perks of starting your firm is deciding your law firm business plan and model. You get to take everything you learned in school and while working at other organizations and implement the parts you like. Even better, you get to 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.
You get the gist. The questions you can ask yourself here are endless, but use your vision and values to inform your model. For example, if one of your values is “grow as people,” you might offer education opportunities for clients in areas related to their cases.
The important part is, it’s all up to you. This is yours. You get to decide.
As part of finalizing your law firm business model, it can be very helpful to complete a competitive analysis. A competitive analysis not only forces you to define who your competitors are, it gives you a chance to determine what may be missing in the market so that you can address it.
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. They aren’t looking at what clients want and how the market is attempting to respond.
Here are some tips for putting together a competitive analysis:
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.
When you’re first starting a 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, it’s helpful to set some initial short-term and excellent long-term goals. Yes, these goals may change as you learn and grow. But, setting goals upfront will give you a path to get started.
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 a written client onboarding process 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 can be a little trickier when you’re first starting. Thinking one, two, 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 three years, you want a staff of five people, a complete operations manual, 50 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.
As you’re starting a law firm business plan, you’ll need 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:
For example, at Lawyerist, we track 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.
KPIs can cover all aspects of your business, including your finances, client satisfaction, marketing, and business development. Keep in mind, as you start your firm, KPIs will be new to you and can feel overwhelming. So, 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. Then, start measuring. As your firm grows, you’ll develop your KPIs.
Let’s look at some examples.
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):
Regardless of your goals, we recommend tracking some basic financial data to keep an eye on the health of your firm. For a quick win, narrow down your financial KPIs to the top three financial numbers needed to understand your business.
Your clients are your most valuable assets. Firm success requires that you watch specific metrics involving your clients.
Client satisfaction KPIs connect to several key law firm growth goals. These include increasing referrals, increasing revenue (happy clients are loyal clients), and improving overall client experience.
Examples of KPIs to track include:
Your Net Promoter Score measures whether 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 you could take action to improve it.
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:
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:
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.
Next, we’ll outline how to use legal technology successfully.