When you're a solo or small law firm partner, retirement can seem like a really daunting thing to plan for. Cash flow can be a rollercoaster, there's no retirement contribution match from a company, and there's a perpetual fear that the client that just signed up may be your last. Heck, just staying in business is a challenge, let alone planning for retirement.
The other week I was speaking with long time Modern Firm client Roy Ginsburg. Roy is an attorney coach, but in the last several years he's also developed a business that helps attorneys sell their law firms. Many attorneys mistakenly think that they are the sole asset of their business — and that when they are done working, their firm has no value without them. While it can be inflating to the ego to think yourself so indispensable, it's even better to realize that things like reputation, good will, client lists, internal processes, and marketing systems can all be sold.
So the question that Roy and I were discussing is: What role does a law firm's website and online marketing activities play in the sale of a law firm — and how can these be best maximized to fuel the selling attorney's retirement?
Law firm websites and online marketing activities that reliably generate new business have measurable value when it comes time to sell the practice. For example, here are profiles of two of our law firm marketing clients:
Solo Family Law Attorney
The website generates two new divorce clients a month with an average revenue per client of $9,000. The website requires hosting, Google Adwords and search optimization services that total to $2,500 per month. Over the year the website averages out to $216,000 in new business and $30,000 in expenses for a net gain of $186,000.
Small Estate Planning Firm
The website generates five new clients a month with an average plan cost of $2,200 and one probate case worth an average of $5,000. The website requires hosting, local marketing and search engine optimization services that total out to $1,400 per month. Over the year the website averages out to $192,000 in new business and $16,800 in expenses for a net gain of $175,200.
These websites and marketing activities are reliably generating serious revenue year over year and should most definitely be factored into the purchase agreement of the firm.
This is the million dollar question, and one that a law firm broker will likely help you answer and negotiate. There are several angles to look at it including projected revenue, perceived traffic value and time/materials cost. While sometimes sold on their own, in most scenarios, the website is a piece of the overall law firm sale or merger.
A website that generates predictable revenue is essentially an annuity. So, given the risk of changes in the marketplace and expenses required to maintain that performance, how much would a purchasing party be willing to pay for that additional revenue? Provided that the selling law firm is keeping good data on how the website is performing, the revenue being generated gives a reference point and then a multiple of that revenue is negotiated for a onetime buyout. Or, if going of counsel, a percentage share of revenue generated is negotiated.
Another way to value a law firm website is to calculate the advertising cost of organic traffic it is generating. Tools like SEMRush can give some estimates about how much it would cost using Google advertising to replicate the organic traffic that is being created by the website being sold. Again, this gives a figure to use in starting negotiations.
A website can be valued based on the cost to reproduce the content or the perceived value of each piece. This could make sense if the website is ultimately being merged in with the acquiring firm's site. Here, a straight dollar value could be given to each blog post or piece of content that is being acquired.
The important thing for the seller to keep in mind during negotiations is to focus on the business value that the website is bringing to the table in terms of new revenue, new clients and increased exposure.
It is critical when a law practice is sold to another firm (whether an actual sale takes place or the transition is in the guise of establishing an “of counsel” relationship with another law firm) that the buying firm is able to retain the revenue benefit of the seller’s previous website traffic even when the selling firm may no longer exist after the transaction is completed. Here are ways this is accomplished.
It’s not as complicated as you might think. For most firms, web traffic is generated for a variety of different reasons. Perhaps the most important ones are the domain name and how long it has existed, the site’s content, paid advertising campaigns (e.g. Google ads), local reviews and organic marketing. So what to do? It’s simple; keep the status quo. Keep the site up and running and maintain whatever marketing activities the seller was previously doing. As the saying goes, “the hits should keep on coming!”
Some tweaks to the website will be necessary. For example, if the selling lawyer is establishing an “of counsel” relationship with the buying law firm, some minor rebranding and edits to the site will be needed to make it clear that the selling lawyer is now “of counsel” to another firm. Don't change the phone numbers, as this could adversely impact local rankings, but do route calls to the acquiring firm. Minor edits to the contact page will probably also be required.
In our conversation, Roy made a good point in explaining that this rather simple solution is good for another reason, above and beyond maintaining website traffic. In many deals, the selling lawyer is compensated based upon the amount of future business generated by the seller’s clients, the seller’s good will, or any efforts attributable to the seller. By maintaining the website and phone number, it should be relatively easy for the new firm to track new business that is generated from the seller’s website.
There is a small downside to this solution. There will be some duplicative expenses incurred since two websites will now need to be maintained. However, assuming the cases still keep coming, it should be well worth the nominal additional expense. Maintaining the status quo is the best way to retain the website's value.
There are occasions where the above solution is not desirable or practical. For example, as good as the website traffic might be for a solo practitioner seller, should that seller decide to join a much bigger firm with a large scale, sophisticated website marketing strategy, it probably doesn’t make much sense to, in essence, still compete with that site for traffic. Under this scenario, the old site should go away. However, the value of the site does not go completely away. Presumably, there will be some good content on the old site that can transfer over to the buying firm’s site. Further, there are ways that, with a bit of fancy affordable coding work (aka 301 redirects) by your friendly website consultant, even the domain name can be subsumed at the new site and presumably add some additional Google “juice” to that site. Of course, Google won’t tell you how much — but there will be a benefit.
Under this scenario, there is no ability to track the web generated traffic of the seller. Buyer and seller will need to come up with alternative ways to value the boost that the old domain name and content give to the buyer’s website.
One of the steps in the "7 Habits of Highly Effective People" is to begin with the end in mind. To that end, the more that an attorney or firm can systematize their marketing and business practices now, the easier it will be to quantify and sell those things, either as part of the firm, or individually, when retirement time comes. Side benefit: it'll also increase revenue and personal satisfaction now.
Our most financially successful clients think of their marketing activities as an investment, not an expense. This one-word difference changes their entire energy and mindset from "oh ugh" to "heck yeah!!" Instead of just seeing money and time going away, they see how investing these precious commodities correctly makes both come back in spades and ultimately, as described here, builds an asset that can fuel them into retirement.
If you have a question you'd like answered about the business end of practicing law, feel free to submit it here. If you're interested in brokering a deal to sell your law practice you'll find Roy to be a valuable resource. Finally, if you need help with anything related to your law firm's online marketing, please contact us.
Next week we'll be covering the most most important thing a lawyer can do to improve their online marketing. Stay tuned!