4-week intensive...marketing new client(s) engaged sales spend cost per ($ + $ / ( # = $ acquisition...

© Copyright 2019 How To MANAGE a Small Law Firm II Inc. All rights reserved.These documents may not be reproduced without written permission from publisher

4-WEEK INTENSIVE

12 Marketing Blueprint Copyright © 2017 by How To MANAGE a Small Law Firm II Inc. All rights reserved.

# Appointments Marketing Must Book Each Year

Annual Lifestyle = / (1 -tax rate)

Owner(s) Benefit Margin (%)

Avg. $ Per Case

Show-up Rate

Conversion Rate=

Owner(s) disposable income req. (After-tax)

ANNL LIFESTYLE = ANNL INCOME = ANNL MKTG TARGET

MTLY LIFESTYLE = MTLY INCOME = MTLY MKTG TARGET

TOTAL OWNER BENEFITS > FIRM NET INCOME

Copyright © 2019 by How To MANAGE a Small Law Firm II Inc. All rights reserved.

UNDERSTANDINGPROFITAND OTHER

KEY METRICSIN YOUR BUSINESS

Turn in the worksheet on page 77 before you leave thisLIVE QUARTERLY MEETING on Sunday to get your tickets

to ALL THREE DAYS FOR FREE.


GROSS REVENUE• ALL MONEY PAID TO YOUR BUSINESS FOR GOODS AND/OR SERVICES

• WHAT IS AND IS NOT INCLUDED IN GROSS REVENUE?

ALL MONEY RECEIVED BY THE FIRM CAN BE FOUND:

• 2018 GROSS REVENUE IN MY BUSINESS =

in your Profit & Loss Statement for the Calendar Year … in the basis you use … mostly cash … if your bookkeeper is doing the job s/he should.in your billing/case management systemin your bank statements

INCLUDED:

NOT INCLUDED:

Hourly FeesFlat FeesSettlement Allocated to “Attorneys Fees”Other Charges for Services and/or product (if any)

Settlement proceeds to be disbursed to partiesReimbursement for CostsSettlement proceeds allocated to costsAdvance Payments for costs

$ (A)

• WHERE CAN I FIND THAT INFORMATION?


• WHAT IS COGS?

• WHAT IS INCLUDED IN COGS?

COGS is the incremental cost to produce the revenue (the billable work).

Incremental costs to produce the work

Allocated Salaries (by SKU)Variable compensation you pay on collected fees.Expenses specifically identifiable to producing the work.Sources:

Probably not salaries

Expenses incurred on an incremental basis that are not reimbursed by client.

COGS also includes the expenses incurred on an incremental basis, that are not reimbursed by the client.

Probably not salariesWith higher sophistication you CAN allocate salaries into COGS

With high level of sophistication can allocate salaries into COGS/COSSMay not be worth the squeezeSKU’s can be helpful in implementing an estimated COSS in a matter

Your Budget (looking forward)Your Profit and Loss Statement (looking backward.)

In early stages of business, it may not be worth the effortSKU’s are essential in implementing an estimated COSS in a matter.

• 2018 COGS / COSS IN MY BUSINESS = $ (B)

GROSS PROFIT• GROSS PROFITS: HOW TO CALCULATE?

• GROSS PROFIT =2018 Gross Revenue MINUSCosts of Goods (Or Services) Sold (COGS / COSS)

$ (A)

(B)



In early stages of business, it may not be worth the effortSKU’s are essential in implementing an estimated COSS in a matter.

GROSS REVENUE =

GROSS REVENUE =

2018 GROSS PROFIT =

2018 GROSS PROFIT MARGIN =

2018

2018

COGS or COSS =

GROSS PROFIT =

$

$

$

$

%

$

(A)

A - B = C

C / A = D

=

=

-

÷

(B)

(C)

(A)

(C)

(D)

(CARRY ON TO WORKSHEET)



NET PROFIT• NET PROFIT =

• ALTERNATIVE METHOD - TOTAL OWNER BENEFIT (TOB)

2018 Gross Profit =

All other costs/expensees born by the firm (that aren’t owners’ perq’s). In other words, overhead.

2018 Net Profit =

Your calculation of Gross ProfitProfit & Loss StatementBudget

TOTAL OWNER BENEFIT (TOB)

OWNER REPLACEMENT COST (FROM PREVIOUS SEGMENT)

RETAINED EARNINGS

NET PROFIT

$$

$

(C)

(E)

(F)

2018 GROSS PROFIT =

2018 GROSS REVENUE =

2018 NET PROFIT = 2018 NET PROFIT MARGIN =

OVERHEAD =

2018 NET PROFIT = $ $

$

$ %

$

(C)

C - E = F F / A = H

=

=

=-

(E)

(F)

(A)

(F)

(H)

-=+


÷

-


• HOW TO CALCULATE:

OWNERS’ SALARIES

DISTRIBUTIONS TO OWNERS

PERQ’S TO OWNERS

REINVESTMENT BY OWNER

TOTAL OWNER BENEFIT

TOB

OWNER REPLACEMENT COST

RETAINED EARNINGS

NET PROFIT

INCREASES IN CASH ACCOUNTS (excluding trust)

DECREASES IN LIABILITIES (excluding trust)

RETAINED EARNINGS

TOB

- -

--

= =

=

=

=

=

+ +

+

+

+ +

+

+

Total Owner Benefits (TOB)

Net Profit

Retained Earnings

Owners’ Salaries

Distributions to Owners

Perq’s to Owners

Reinvestment by Owner

Total Owner Benefit

TOB

Owner Placement Cost

Retained Earnings

Net Profit

Increases in Cash Accounts(excluding trust)

Decreases in Liabilities (excluding trust)

Retained Earnings

Copyright © 2019 by How To MANAGE a Small Law Firm II Inc. All rights reserved.64

MARGINAL TAX RATETHE TAX RATE INCURRED ON EACH ADDITIONAL DOLLAR OF INCOME.

THIS INCREASES IN STEPS, FOR MOST OF THE MEMBERS, AS THEY MOVE FROM ONE PERSONAL TAX BRACKET TO THE NEXT.

Copyright © 2019 by How To MANAGE a Small Law Firm II Inc. All rights reserved. 65

EFFECTIVE TAX RATEEFFECTIVE TAX RATE IS THE FULL AMOUNT OF TAXES YOU PAID, DIVIDED BY YOUR TOTAL INCOME (NET PROFIT)

YOU CAN LOOK AT THESE SEPARATELY, AND COMBINED:

FULL AMOUNT OF TAX YOU PAID ÷ NET PROFIT =

USE THIS PERCENTAGE TO SET-ASIDE THESE DOLLARS AS YOU EARN


Calculation of Net Profit you just didBudget - with Planned Net ProfitYour completed tax returns

FederalTax Paid

LocalTax Paid

StateTax Paid

OtherTax Paid

TotalTax Paid

Tax SetAside Rate

NetIncome

NetIncome

NetIncome

NetIncome

NetIncome

Net ProfitMargin

Federal EffectiveTax Rate

Local EffectiveTax Rate

State EffectiveTax Rate

Other EffectiveTax Rate

Total EffectiveTax Rate

Total EffectiveTax Rate

$

$$

$

$

$

$$

$

$

/

//

/

/

= X

=

==

=

=

%

%

%

%%%%



CURRENT ALLOCATION PERCENTAGES (CAPS)

NOW THAT YOU KNOW YOUR CURRENT PROFITS, AND EFFECTIVE TAX RATE, YOU CAN CALCULATE YOUR CAPS.

CAPS DEFINITIONS:

Profit = Net Profit ÷ Gross Revenues

Owner Comp = Total of Distributions and Perq’s and Owners Salary ÷ Gross Revenues

Tax = Tax Set Aside from Previous Page

Marketing = the % of gross revenues you have been spending on marketing.(This is advanced use of CAPs, not mandatory)

Operating =

This is the money you have to run the business.

Revenues

Profit %

Owner Comp %

Tax %

Marketing %

%OPERATING EXPENSES

----=

100%


CAPS

Profit

Operating Expenses

Owner Comp

Tax

Marketing

100%

%

%

%

%

%

Revenues


TARGET ALLOCATION PERCENTAGES (TAPS)

YOU GET TO CHOOSE HOW YOU WANT YOUR BUSINESS TO OPERATE GOING FORWARD. IN THE NEXT YEAR, HOW WILL YOUR CAPS CHANGE? THESE ARE YOUR TARGETS.

TAPS DEFINITIONS:

IT IS IMPORTANT TO NOT “SHOCK” YOUR LAW FIRM BUSINESS BY CHANGING YOUR ALLOCATIONS TOO SUDDENLY. MOVE TO TAPS DELIBERATELY AND INCREMENTALLY. A GOOD RULE OF THUMB IS 1% - 2% PER QUARTER MAXIMUM.

HINT: INCREASING REVENUES MAKES THIS EASIER!

Profit = Net Profit ÷ Gross RevenuesOwner Comp = Total of Distributions and Perq’s and Owners Salary ÷ Gross RevenuesTax = Tax Set Aside from Previous PageMarketing = the % of gross revenues you have been spending on marketing.(This is advanced use of TAPs, not mandatory)Operating =

This is the money you have to run the business.

Revenues

Profit %

Owner Comp %

Tax %

Marketing %

%OPERATING EXPENSES

----=

100%


* YOU CAN/MUST CHANGE TAX SET ASIDE AS QUICKLY AS YOUREFFECTIVE TAX RATE CHANGES. YOU WILL NEED TO REVIEW THIS WITHYOU TAX ADVISER.

TAPSCAPSALLOCATIONS 3Q2Q1Q

Profit

Operating Expenses

Owner Comp

Tax

Marketing

100% 100% 100% 100% 100%

% % % % %

% % % % %

% % % % %

% % % % %

% % % % %

Revenues


COST PER ACQUISITION (CPA)

TotalMarketing

New Client(s)Engaged

Sales Spend

Cost PerAcquisition$ #$+ = $/( (

PROFT AND LOSS STATEMENT:

BUDGET SHOULD SHOW YOU WILL

All your spending on marketing, advertising, and promotion, not including salaries. (MAP spend.)

all your spending on sales commissions

Reduce CPA

Increase Average Case (next section) or both

+

CPA =



AVERAGE CASE VALUE (ACV)YES, I KNOW “IT VARIES.” I KNOW “THERE IS A BIG RANGE.” NOW THAT WE HAVE DISPOSED OF THAT ….

THAT IS WHY WE CALL IT “AVERAGE CASE VALUE”

Profit and Loss Statement - Gross Revenues

Case Management or Billing Software

Budget (looking forward). Is your plan to increase, decrease or maintain your ACV?

* If you have multiple practice areas, you may wish to also calculate ACV in each.

** As you grow more sophisticated, you will want to monitor ACV for every SKU

2018 Gross RevenueTotal # of CasesClosed in 2018

AverageCase Value$ #/ = $


ACV =


ACCOUNTS RECEIVABLE (A/R)ACCOUNTS RECEIVABLE ARE A MALIGNANCY ON YOUR BUSINESS. YOU MUST KNOW:

MY LAW FIRMS’S ACCOUNTS RECEIVABLE:

Who owes you...How much...For how long...(and how you plan to collect)


YOUR GENERAL LEDGER PROGRAM (QUICKBOOKS, XERO, ETC.)YOUR BILLING SOFTWAREYOUR CASE MANAGEMENT SOFTWAREFROM YOUR BOOKKEEPERS A/R REPORT S/HE SHOULD BE PROVIDING TO YOU WEEKLY!

Current

30 Days

60 Days

90 Days

Total

$

$$

$$

PAY ATTENTION TO WHAT THIS TOTAL MEANS!

My plan to collect is:


LABOR COST RATIO (LCR)

WHAT IS YOUR DESIRED LABOR COST RATIO (LCR)?

At every $Gross Profit level, this becomes your SALARY CAP! You must field your team with these dollars. You can be the Patriots, or you can be the Cardinals(sorry guys, nothing personal, but 13 losses … and remember, I am a Jets fan, so I feel your pain.)

So, now you must distribute this cap around your “players” as you build your business.

Someone must be doing these jobsIf not, the deferred maintenance will catch up with you … and could kill you.Your firm may not be ready for a FT person in these roles.(@$150K, $120K, $135K respectively)

This is a really cool metric. Think about it as the MPG of your law firm!

WHEN YOU DO THIS … YOUR BOOKKEEPER SHOULD HAVE HTM AS LABOR COST (CEO, COO, CFO … IN THE LINE ITEMS YOU SHOULD HAVE IN YOUR BUDGET FOR THESE ROLES. SO, WHEN IT COMES TIME TO HIRE THESE ROLES, YOU HAVE THE LINE ITEM IN YOUR

BUDGET, AND YOU CAN MAKE THE DECISION TOMOVE THAT ROLE “IN HOUSE.”

LABOR COST RATIO GROSS PROFIT PER LABOR DOLLAR SPENT=

Gross ProfitLabor Costs

(Gross up with all taxes, etc)Labor Cost

Ratio$ $/ = %


SALARY CAP AT GROSS PROFIT $

$%=

=FTE NEEDED ALLOCATED

SALARY$/HR.

RECEPTIONIST

PARALEGAL

LAW FIRM ADMIN

BOOKKEEPER

MINDER (SR. ASSOC.)

SALES DIRECTOR

CLIENT RELATIONS

SECRETARY/ASSISTANT

GRINDER (ASSOC.)

MARKETING DIRECTOR

OFFICE MANAGER

FINDER

NASP

COO

CFO

CEO

OWNER

TOTAL


DECISIONS TO BE MADEIs Allocated Salary under your cap?

Did you write $0 anywhere because someone (including you) is on double/triple or more duty?

If that person is you, did you include that in the previous section when calculating your market salary?

If so, where are you not deploying resources to improve your team?If not, where can you get more productivity out of your existing team?

Is that person effective in their multi-role?When will that cease to be true?What is the plan for that?

MAKE SURE YOU FILL OUT THE WORKSHEET ON THE NEXT PAGE AND TURN IT IN FOR YOUR FREE

WORKSHOP AND BONUS SESSION!TURN IN BY FEBRUARY 18 TO GET A FREE WORKSHOP

(BUT NO BONUS SESSION)

If you have trouble completing this worksheet, please go to your CEO during and after the LQM

CEO’s will be able to help your business more with this information

This worksheet is a form you should maintain current … Quarterly at a minimum.

Gross Revenue

Effective Tax Rate

Tax

Tax

60 days

Net Profit

Profit

Profit

Current

Operating Expenses

Operating Expenses

Cost Per Acquisition (CPA)

Gross Profit

CAPS

Marketing

Marketing

90 days

Marginal Tax Rate

Owner Comp

Owner Comp

30 days

TAPS

Avarage Case Value (ACV)

Labor Cost Ratio

Account Receivables

Salary Cap

20192018

WORKSHEET RECEIPT:

NAME:

CEO:

KEY METRICS IN MY LAW FIRM BUSINESS

1

3

5

8

2

4

6

910

1112

7

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

$ $

% %

% %

% %

% %

% %

% %

% %

% %

% %

% %

% %

% %

% %


~ Kevin Armstrong

An amateur practices a skill until they can get it right. A professional practices a skill until they can’t get it wrong.

7 Parts of Your Business

YES, last week's homework discussed the 7 main parts of your law firm, and walked through your goals for each of those parts. But, often times, you have to go through them more than once to make sure everything adds up... Go to www.howtomanageasmalllawfirm.com/Course and listen to this week's audio on aligning your personal, professional, and financial goals with the goals of your firm - then fill out the pages that follow.

GOALS.

A. YOUR Definition of a “Successful” Business - Financial.

In order for me to consider my business to be successful, it must provide $______________ per year/ $ __________ per month income for me. This is based on the following personal budget based on how much it costs to live the way I am living currently and how much it costs to live the way I want to be living.

NOW GOAL HOME § Mortgage/ Rent _______________ _______________ § Utilities _______________ _______________ § Telephone/ Cell _______________ _______________ § Domestic Services _______________ _______________ § Maintenance _______________ _______________ § Groceries _______________ _______________ § Clothing _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

ENTERTAINMENT § Restaurants _______________ _______________ § Theater/Sporting Events/ Etc _______________ _______________ § Hobbies _______________ _______________ § Social Clubs _______________ _______________ § Dues/ Subscriptions _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

LEISURE § Vacations _______________ _______________ § Travel _______________ _______________ § 2nd Home _______________ _______________ § Toys (ex: boat, motorcycle, etc) _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

INSURANCE § Health _______________ _______________ § Life _______________ _______________ § Disability _______________ _______________ § Auto _______________ _______________ § Home _______________ _______________ § Boat _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

DEBT SERVICE § Credit Cards _______________ _______________ § Student Loans _______________ _______________ § Alimony _______________ _______________ § Child Support _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

SAVINGS/ RETIREMENT § Savings Account 1 _______________ _______________ § Savings Account 2 _______________ _______________ § Savings Account 3 _______________ _______________ § Retirement _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

TRANSPORTATION § Car _______________ _______________ § Car _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

EDUCATION § Adult personal development** _______________ _______________ § Child 1 529 plan/ current tuition _______________ _______________ § Child 2 529 plan/ current tuition _______________ _______________ § Child 3 529 plan/ current tuition _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________ ** Note: Professional education will be a business expense.

CHARITY § Charity 1 _______________ _______________ § Charity 2 _______________ _______________ § Other _______________ _______________

Subtotal: _______________ _______________

Subtotal Home: _______________ _______________ Subtotal Entertainment: _______________ _______________ Subtotal Leisure: _______________ _______________ Subtotal Insurance: _______________ _______________ Subtotal Debt Services: _______________ _______________ Subtotal Savings: _______________ _______________ Subtotal Transportation: _______________ _______________ Subtotal Education: _______________ _______________ Subtotal Charity: _______________ _______________

Total: _______________ _______________

Therefore, based on the above the firm needs to provide to me $_____________ per year/ $ _______ per month Total Owner Benefit.

** Note: Total Owner Benefit is all of the financial resources you receive from the business. This includes your salary and benefits, your distributions, all other Perqs (things you would have to pay for if you had a normal job), and taxes paid by the business on your behalf.

Broken down a different way this might look like the following in my law firm:

Example: $100,000 Owner Salary

$ 50,000 Owner Distribution $ 25,000 Other Perqs. $ 0 Taxes Paid $200,000 Total Owner Benefit.

Total Owner Benefit: _____________ Owner Salary _____________ Owner Distributions _____________ Other Perqs _____________ Taxes Paid _____________ Total Owner Benefit.

B. YOUR Definition of a “Successful” Business – Personal (Time).

1. How Many Weeks Will I Work?

Out of 52 weeks in a year I choose to plan to take time for the following.

Example: 52 weeks - 2 weeks for holidays.- 2 weeks for vacation.- 1 weeks for life happens.

47 weeks.

My Year: 52 weeks

- ______ weeks for holidays.- ______ weeks for vacation.- ______ weeks for life happens.

______ weeks.

In order for me to consider my business to be successful, it must be able to sustain itself as a going concern with me away on “emergency access only” for ______ consecutive weeks/yr, so that I can ____________________________________ ________________________________________________________________.

2. How Will I Spend Each Work Week?

In order for me to consider my business to be successful, I want to be able to run my business giving it ____ hours a week and ____ weeks per year so I can balance the things I “have to do” and the things I “want to do”.

This means I must balance my week with the activities I choose so I can move my firm forward while maintaining balance in my own life.

168HoursinEveryWeek–HowDoYouSpendIt?I. Things You MUST Do Yourself Every Day And Cannot Delegate.

#HRS/ WK Sleep ______ Eat ______ Personal Hygiene ______ Commute ______ Other ______ Subtotal

II. Things You WANT To Do

Exercise/ Hobby ______ Kids Playtime/ Homework ______ Personal Time w/Spouse or S.O. ______ Spiritual Time ______ Social Time w/Friends + Family Other ______ Subtotal

III. Things You Do For The Mule To Keep It Healthy + Productive.

Marketing Networking ______ Sales Calls ______ P.R. ______

Management Training + Supervision Staff ______ Policies & Procedures ______

Financials

Budget/ A/R’s/ Evergreens ______ Trust Account Management ______

Legal Services Calls w/ or for Clients ______ Research ______ Court/ Prep for Court ______

Draft/ Review K’s + other Agmts ______ CLE ______ Other ______ Subtotal

Total: 168 hrs

Example Calendars

DROWNING

CLIENTWORKMRKTG&SALESADMIN/TRAININGS

TREADINGWATER


Suggestions for Balance

SINGLE OWNER DOING ALL THE WORK. 50 hours to the Firm.

25 hrs Client Legal Work. 15 hrs Marketing and Sales 8 hrs Admin/Training/PSPs 2 hrs Financial Controls. 50 hrs.

OWNER WITH TEAM DOING LEGAL WORK. 50 hours to the Firm.

15 hrs Client Legal Work. 25 hrs Marketing and Sales 8 hrs Admin/Training/PSPs 2 hrs Financial Controls.

50 hrs.

BUILDINGFORGROWTH!


C. YOUR Definition of a “Successful” Business – Professional.

To be a “successful” business that I can be proud of, my business should help/ solve/ create/ deliver/ make the world a better place for (describe your target customer/ client) by (describe how your business will accomplish this objective.

D. Volume of Business.

• Required Total Owner Benefit (TOB) (from Section A)________________________

• TOB/ TOB % = Gross Revenue Required.______________/ _________ = _________________

• Gross Revenue Required/ Avg Case Value = # Sales Required.______________/ _________ = _________________

** Note: Average Case Value is the total revenue last year divided by the number of cases you opened last year.

Example: Required Total Owner Benefit (TOB): $100,000 TOB/ TOB % = Gross Revenue Required

$100,000 TOB/ 33% TOB% = $300,000 Gross Gross Revenue Required/ Avg Case Value = # Sales Reqd.

$300,000 Gross/ $3000 Avg Case Value = 100 Sales Reqd

4-week intensive...marketing new client(s) engaged sales spend cost per ($ + $ / ( # = $ acquisition...

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