The Step-by-Step Formula to Calculate Your Law Firm's Marketing Budget

Marketing Budget Calculator for Law Firms

This 6 step approach provides a comprehensive method for determining an appropriate marketing budget based on various financial metrics:

1. Calculate Average Case Value (ACV)

ACV: The average revenue generated per client or case.

• Formula:

ACV = Total Revenue Per Month / Number of Cases Per Month

• Example:

If your law firm generates $100,000 per month and handles 20 cases per month, your average case value will be $5,000:

ACV=100,000/20=$5,000

 

2. Determine Client Lifetime Value (LTV)

LTV: The total revenue a client generates over the duration of their relationship with the firm.

If the ACV represents the average revenue per case and the average client has multiple cases, multiply ACV by the average number of cases per client to determine LTV.

• Formula:

LTV = ACV × Average Number of Cases per Client 

• Example:

If ACV is $5,000, average client has 2 cases:

LTV = $5,000 × 2 = $10,000

3. Calculate Customer Acquisition Cost (CAC)

CAC: The amount spent on marketing and sales to acquire a new client per month.

• Formula:

CAC = Total Sales and Marketing Expenses / Number of New Clients Acquired

• Example:

If your total marketing and sales spend is $10,000 and you acquire 5 new clients:

CAC = 10,000 / 5 = $2,000

 

4. Determine LTV:CAC Ratio

LTV:CAC Ratio: A measure of the value generated from a client relative to the cost of acquiring that client.

A higher LTV:CAC ratio indicates better profitability and efficiency in client acquisition.

• Formula:

LTV:CAC Ratio = LTV / CAC 

• Example:

If LTV is $10,000 and CAC is $2,000:

LTV:CAC Ratio = 10,000 / 2,000 = 5 

This means for every $1 spent on acquiring a client, the firm generates $5 in revenue.

For Legal Services industry, the benchmark LTV:CAC ratio is 4.5:1

 

5. Set CAC Target Based on Desired LTV:CAC Ratio

To achieve a target LTV:CAC ratio (e.g., 5:1), set the CAC target accordingly.

• Formula:

CAC Target = LTV / Desired LTV:CAC Ratio

• Example:

If LTV is $10,000 and the desired LTV:CAC ratio is 5:1:

CAC Target = 10,000 / 5 = $2,000 

 

6. Calculate Your Marketing Budget

A marketing budget is a financial plan that outlines the amount of money allocated for marketing and advertising efforts over a specific period, typically a month, quarter, or year. This budget covers a range of activities aimed at attracting new clients, retaining existing ones, and promoting the law firm's services.

• Formula:

Marketing Budget = (LTV / Target LTV:CAC Ratio) * Number of Desired New Clients

• Example:

LTV (Lifetime Value) = $10,000
Target LTV:CAC ratio = 5:1
Number of Desired New Clients = 10

Marketing Budget = (10,000 / 5) * 10 = $20,000

Interpretation:

Based on an LTV of $10,000 per client, a target LTV:CAC ratio of 5:1, and a goal of acquiring 10 new clients, the law firm should allocate a marketing budget of $20,000. 

This budget allows for spending up to $2,000 to acquire each new client while maintaining the desired 5:1 ratio between the lifetime value of a client and the cost to acquire them.

Putting It All Together

By following this method, you've determined that your firm can allocate $20,000 per month to marketing while maintaining profitability. This data-driven approach ensures your marketing budget aligns with your firm's financial realities and growth goals.

These calculations should be revisited regularly as your firm grows and market conditions change. By consistently analyzing these metrics, you can fine-tune your marketing budget to maximize ROI and drive sustainable growth for your law firm.

 

Do you want to calculate your advertising budget? Use the Ad Budget Calculator for Law Firms.