When it comes to helping attorneys understand just how important profitability is to law firms, there is a lot of information on the Internet to sift and sort through. And not all of it is accurate or even helpful. Lucky for you, we scoured the Internet and discovered some really valuable resources about law firm economics that can help you make more profit for your firm. We’d like to share what we found. Here is a countdown of our favorite five:
Resource #5- Mark Medice (Program Director at HBR Peer Monitor), John Alber (Strategic Technology Partner), and Bryan Cave LLP described the billing and pricing direction they believed the legal profession was heading in a summit called, The Next Generation of Law Firm Economics. They said that the transition from hourly pricing arrangements is simply a natural evolution.
They noted that billable hour alternatives began in 2009 due to client demand and economic changes. With the decline of the billable hour and the growth of fixed fees and project pricing comes the need to understand individual law firm economics in order to reduce risk to the firm by underpricing cases. We couldn’t agree more. Good performance metrics, including expense management, practice management, partner performance, client development/market strength, balance sheet/risk management and leadership statistics can nudge the firm toward improved efficiency and better asset management by measuring and considering returns relative to risk.
What we especially liked about this presentation was the division of performance metrics by category and within category columns for Today’s Key Metrics, Drivers of Change and Possible Future Metrics. It’s a helpful visual of the information performance metrics provides. Read more here.
Resource #4 – You can always trust the American Bar Organization for practical and relevant articles on a wide range of important topics related to the legal profession. In their article, 15 Proven Profitability Techniques by author Joel A. Rose, even we learned a thing or two. What we especially liked about the article was that they recognized the challenge of increasing profits and reducing clients’ legal fees without working more hours or charging higher hourly rates. At first glance, it seems that the two contradict each other. How can you make more profit and reduce your fees? While it may not be easy to pull off, when you make it your goal and adjust old thinking habits, it becomes a formula for success. A main takeaway of the blog post is that firms must handle billing differently. In the past, money was left on the table. Bills weren’t sent out at appropriate times and/or money wasn’t collected from the client. Instead, the firm economics counted on write-offs and write-downs of unbilled time and receivables. The article highlights 15 proven approaches for enhancing profitability. Even implementing a couple, such as better management of billing, receivables and payables can help improve the firm’s profits. Read more here.
Resource #3 –Jim Hassett, author of a research report called, “Client Value and Law Firm Profitability,” gives legal professionals a rare opportunity to see exactly how their peers view the challenges facing the law profession. While there is certainly a wealth of information regarding the shifting landscape of the legal profession—countless articles, books and conferences—one area that hasn’t received the same amount of coverage is public opinion by those running large law firms. No more. Hassett interviewed chairs, managing partners, executive committee members, CEOs, CFOs and other senior executives at 50 AmLaw 200 firms between June 2013 and January 2014.
One managing partner in the report summed things up succinctly, “Project management is not natural to lawyers. We’ve always been trained to get the case done well to win, but now we also have to get the case done efficiently, and that is not part of the natural toolkit for most people.” It is not something that law students spend a lot of time learning, but has become vital to not just the firm’s success, but individual, professional success as well. This article describes personal experiences from attorneys and the journeys required to adapt to the changing environment in order to survive. Read more here.
Resource #2 – Here’s another gem. The article called, 5 Tips for Improving Law Firm Profitability, by David Lat, writes about his experience attending the “Comprehensive Update on Law Firm Financial Performance & Metrics” panel discussion at the Thomson Reuters Law Firm Leaders Forum. Comprised of five panelists, leaders in the legal profession, moderator, Beau Grenier, led the discussion by noting the shifts in law firm profitability. Historically, creating more profit for the firm was accomplished by working and billing more hours. That approach no longer works. Due to stiff competition, in order for firms to be more productive, partners must be well-informed about their operations by using productivity and profitability tracking tools. He gives five ideas that emerged during discussion sessions for how law firms can be more profitable in this highly competitive environment. Read more here.
Resource #1 – Blog post, Six Business Metrics Every Law Firm Should Measure, by Frank Strong, says it’s of utmost importance for attorneys to run their firms like a business and be good stewards in regard to clients’ finances. As a managing partner, Anderson has seen how the industry has changed up front and personal. He shares six business metrics he uses to track productivity that every law firm should track. With easy to understand explanations of six financial metrics, from the cost of servicing a client to how to measure profitability to realization and more, this blog post will help take the mystery out of law office economics. Read more here.
All five of these resources offer great ways to improve law firm profit. Just incorporating one or two into the management of your firm can provide you with savings and/or additional profit. Learn how to use metrics to understand law firm economics and learn how to be competitive in a competitive environment. Start out with small changes, monitor the improvements and adjust what works and doesn’t work for you. Keep adding and adjusting until you see the numbers you want and understand what causes and creates the biggest impact.