They say that turnover is vanity, profit sanity, but that might be too harsh a judgement on law firms. Armstrong Watson’s March 2021 Legal Sector Benchmarking Report showed law firms enjoyed a 29% surge in fees in 2020, whilst also seeing their profit rates tumble by a quarter.
There was a global pandemic. For a few weeks last Spring no one knew how far we’d fall, and for most firms, survival was the only priority. Revenue was revenue, and profitability was for another day. Interestingly this fall in profits only happened at firms with fewer than seven partners. Presumably the larger firms with deeper pockets had fewer existential concerns.
Yet, the world is different now. The vaccine rollout is flying, and the Office for Budget Responsibility now predicts the UK’s GDP will return to pre-crisis levels by the middle of next year – six months earlier than previously expected – and that GDP growth next year will be the highest since 1941.
The question for all firms now, regardless of size, is how to return to the sanity of profits. For many, the answer ought to be specialisation.
For any professional services firm specialisation is one of the most reliable routes to greater profitability. Why?
- Clients pay more for specialist expertise.
- You become less easy to replace.
- You spend fewer resources learning about each new client’s field.
- Potential clients coming to you are further along the decision path so more likely to convert, meaning fewer resources wasted on unproductive conversations.
- Your marketing becomes more targeted with a higher impact.
That is not all. The videoconference is here to stay and that opens the world to be your market - does your client choose the generalist at the end of their road, or you, the specialist on the other side of the world?
This is no mere theory. A 2017 study revealed that highly specialised firms are 22% more likely to be highly specialised. In the world of law, a 2018 study by conveyancing software company InfoTrack showed that 43% of home-movers in the previous year had chosen a specialist conveyancer over a local solicitor, up from 27% of those who had moved up to three years previously.
It’s important to note that this is not an argument for reduction. Large firms can be specialists; they just specialise in a number of areas. Nor is it an argument for rejecting work that comes in if it’s outside your specialisation. Do the work if you want to but focus your marketing on your specialism.
We started Spell with a very niche specialism, but most firms don’t start that way. Retro-fitting specialisation onto an established generalist cannot happen overnight. The first step – figuring out your niche – takes time. It should be based on careful evaluation of the data – where you make your money, and where the opportunities are – alongside an honest conversation with your team about the work you all enjoy doing.
Once you’ve found your niche, make sure it’s clear and present at every contact point, from your website, your email signature, and your social platforms, right through to what you tell people you do for a living.
Then you can start marketing. Create content that will interest your audience, showcase your expertise, and attract the right people to you. Find ways to get it in front of those people.
It’s a long journey but it’s a journey to profitability and sanity. As professional services firms emerge from this long pandemic year many are ready for a healthy dose of both.