When purchasing a law practice, buyers seek revenue they ordinarily could not obtain on their own. For example, buyers hope that, with the proper introductions, the relationships that a seller has with repeat clients can be successfully transitioned to the buyer. The same can be said for a seller’s referral network, be they former clients or other professionals.
But what about future revenue in situations where a seller obtained most of its clients through a form of marketing or advertising? Here, the answer is not always simple. Let’s review the impact of some of the more popular forms of marketing and advertising today.
What about those clients who are obtained by organic searches on the web? Are these the type of clients that buyers could not ordinarily obtain on their own?
The answer is, “sometimes.”
For new players in the market in the particular practice area, such a website will be extraordinarily valuable. For a well-established competitor with a top notch website, however, the acquisition makes less sense.
Consider a law firm whose revenue is generated by thousands of dollars spent monthly on paid ads. Is that considered revenue that buyers could not obtain on their own?
Under most circumstances, the revenue could be obtained by buyers on their own. What’s the point of buying a firm that relies heavily on paid ads when the buying firm could simply just create its own paid search campaign?
There are a handful of practice areas where you can literally buy leads that can turn into clients. This type of revenue is certainly the kind of revenue that buyers can obtain on their own. There’s no sense in buying a firm that’s heavily dependent on lead generation services since the buyer can make a similar investment for its own firm.
Consider a personal injury law firm that spends tens of thousands of dollars on TV and billboards and generates millions in revenue. Should buyers be interested in these types of firms?
Once again, the answer is, “sometimes.” It depends upon the buyer.
Media campaigns are intended to create brand recognition. There’s little sense for a law firm that already has its own brand identity to make such a purchase unless the buyer intends to operate the other firm separately.
However, for a less-established competitor who has yet to create any significant brand identity in the marketplace, a purchase would be a wise way to immediately become an established player.
If you’re considering the purchase of a law firm, be wary of those firms whose revenue has been generated by significant expenditures in marketing and advertising.
On the flip side, if you’re a law firm owner, your law firm may not be a valuable as you might hope if most of your firm’s revenue is obtained by these methods.
If you’re at all concerned about how marketing and advertising spend may affect the sale of a law firm you own or you’d like to own, speak with an experienced advisor.