Profitability

Articles

• Pandemic KPIs – Some New, Some Old but All Relevant  
  by Stephen Mabey, CPA, CA
  

  According to Peter Drucker, the legendary management guru, what gets measured gets done and what gets measured improves. As a law firm, what does your firm measure? As a law firm managing partner, which KPIs (if any) do you closely monitor? With whom do you share this information? And in what manner do you share it? Steve’s article presents a few KPIs that may be especially important to measure during times of uncertainty and change.

• Acing Client Communications:
  How to Explain an Increase in Your Rates
  by Susan Kostal
  

  When it comes to pricing for legal services, the billable hour remains king. Consequently, we advise most law firms to get in the habit of raising their standard hourly rates on an annual basis, especially for new clients...a small increase every year across all time-keepers. This article provides some great guidance on how to justify a rate increase to your clients. Talk to them about your firm's investments in technology and talent development.

• Five Ways to Improve
  Your Law Firm’s Culture
  by Mary Redzic
  

  In her article, Mary identifies five impactful ways to build and improve your firm’s culture so you attract and retain the best legal talent; so your lawyers and staff who work efficiently and effectively as a team in handling client matters and generating new matters and clients; in an organization with an exciting plan for the future and in which all lawyers and support staff are valued and appreciated. To improve the culture at your firm, Mary recommends the following:

  • Get to the Root of the Problem
  • Always Lead by Example
  • Don’t Rely on HR to Handle Everything
  • Increase Teamwork and Collaboration
  • Deliver Happiness to Your People
  For each of the five ways to improve culture, she identifies a fantastic resource to help.

• Law Firms Demote Partners as Pressure Mounts over Profits
  by Sara Randazzo, The Wall Street Journal
  

  BigLaw is aggressively demoting partners in the face of modern-day legal practice. In case you missed it, this article ran in mid-October in The Wall Street Journal. It profiles Shearman & Sterling and Chadbourne & Parke and presents a somber dose of reality as firms run more like businesses with a watchful eye on profitability. The past year and a half has seen “pervasive” trimming of partners at the nation’s top 100 law firms, says legal consultant Peter Zeughauser. “It’s very difficult for firms to deal with this issue,” says Jeffrey Lowe, head of the law firm practice at recruiting firm Major, Lindsey & Africa. “But the business pressure is forcing them to do so.” Here are few factoids presented in the article:

  • The average number of billable hours by equity partners at AmLaw 200 firms has dropped nine percent (9%) since 2007 to 1,589.
  • Fifty-six percent (56%) of AmLaw 200 firms plan to de-equitize underperforming partners in the coming year.
  • Sixty-seven percent (67%) of them plan to take it one step further and ask partners to leave the firm altogether.

• The AmLaw 100: Signs of a Slowdown 
  by Chris Johnson
  

  Here’s yet another report about the overall sluggish marketplace for legal services for even the largest US-based law firms. It’s a buyer’s market, and corporate clients are taking advantage as they work to reign in their spend on outside counsel. We think this long-term market trend has positive implications for smaller and mid-size law firms who find themselves in the position to provide a much more attractive “value proposition” than BigLaw. Here are few highlights of this week’s article:

  • Overall growth among the AmLaw 100 firms was anemic in 2015, slowing to its lowest level since the Great Recession in 2008. Indicators aren’t predicting an uptick anytime soon.
  • Within the AmLaw 100 firms, the top 28 firms – They use the term “Super Rich.” – are distancing themselves from the rest of the pack when it comes to financial performance with Revenue per Lawyer (RPL) or at least $1 million and Profit per Partner (PPP) of at least $2 million.
  • By any measure, Wachtell stands apart from the crowd. With just 261 lawyers, its PPP stands at an eye-popping $6.6 million. That’s $2 million more than second-place Quinn Emanual at $4.4 million.
  • The sharpest declines in financial performance in 2015 were seen at Arnold & Porter, Baker & McKenzie, Hunton & Williams and K&L Gates.
  As we like to say at MPF, bigger is not always better.

• Nine Vital Numbers
  for Your Law Firm’s Health 
  by Larry Port
  

  What are the key metrics you use to assess your firm’s financial performance? For many firm leaders, it’s total firm revenue. Others look closely at billable hours and/or collections by lawyer. Others keep a watchful eye on overhead expenses and receivables. Larry is a frequent speaker about technology, productivity and the business of law and has been recognized by Fastcase as one of the top 50 innovators in the legal field. He suggests nine vital statistics, including:

  • New Clients per Month
  • Matter Budgeting
  • Utilization Rate per Timekeeper
  • Realization Rate per Timekeeper
  What’s included in your firm’s financial reports? Are there any indicators you should be looking at that you’re not?

• The Eight Habits of
  Highly Profitable Law Firms
  by Michael B. Rynowecer, The BTI Consulting Group
  

  This short article highlights BTI Consulting’s analysis of more than 330 law firms and reveals that firms with the highest profits (reported or not) exhibit eight key traits that are largely responsible for their exceptional financial performance. Here are four of them:

  • Invest the time to get to know their clients, their businesses and their industries;
  • Promote internal communication and socialization throughout the year with multiple events beyond the Firm Retreat;
  • Provide exceptional client service – especially accessibility and responsiveness; and
  • Deliver a uniform client experience across practice area and offices. Is your firm consistently performing well in these areas?

• Midsized Law Firms Report Things Getting Better
  by John Remsen, Jr.
  

  The ABA’a Law Practice magazine asked us to contribute an article for its finance column, drawing upon data collected at The MPF 2014 Leadership Conference. Eighty-five (85) managing partners, mostly from mid-size law firms, attended the full-day conference, and we used audience polling technology to query the crowd about a range of topics.
  
  The article highlights data about financial performance so far this year, alternative fee arrangements and the metric most preferred by managing partners to assess their firms’ overall financial health.  

  • 2014 Has Been a Pretty Good Year for MidLaw
    Forty-two percent (42%) of managing partners said their firms were performing about as expected so far in 2014. Thirty-six percent (36%) said they were beating expectations.
     
  • AFA’s Are Not Exactly Taking Off
    Forty-eight percent (48%) of managing partners reported that alternative fee arrangements (AFAs) represent less than 5% of firm revenue. Twenty-one percent (21%) said it’s in the 6-10% range. Twenty-seven percent (27%) said they proactively pitch AFAs, with 2/3 reporting little interest from clients.
     
  • It’s About the Bottom Line
    Twenty-five percent (25%) of firm leaders said they believe that “Total Firm-wide Profit” is the best indicator of a firm’s overall health. Twenty-one percent (21%) preferred “Revenue per Lawyer.”
  We also write about succession planning in the article. Are your firm’s current crop of young lawyers up to the task of inheriting the place?

• The Next Best Thing After Cutting Expenses: Collections
  by John T. Podbielski., Esq.
  

  In recent years and as the Great Recession drags on, many law firms have been challenged to maintain, much less increase, their profitability. At first, they looked for ways to cut expenses. They let staff and associates go, cancelled firm retreats, slashed investments in marketing and technology and, in some cases, de-equitized underperforming partners. We're all for dealing with underperforming partners, but many of these actions are penny-wise and pound-foolish in our opinion. The real way for your firm to improve its profitability in the near-term is to get serious about your billing and collections practices. John's article offers some great ways to go about it.

• Ten Tips to Improve Profit in 90 Days or Less
  by Eric G. Dewey
  

  In our November MPF Flash Survey, managing partners reveal that the most effective ways their firms have improved firm profitability over the last three years. Their answers, in order of effectiveness, are 1) Improved Billing and Collections Practices, 2) Marketing and Business Development, 3) Improved Efficiency in Staffing Matters, and 4) Rate Increases, where possible. Now comes Eric Dewey offers his ten tips - ranging from dealing with underperforming partners to calling on top clients - that can be implemented in 90 days or less.    

• Marketing to Your Existing Clients: Three Can't Miss Programs 
  by John Remsen, Jr.
  

  This classic article originally appeared in Law Marketing Exchange, LMA's national newsletter, back in 1997. Although written almost 15 years ago, its lessons are more important and relevant than ever. Take great care of your current clients - the ones you want to keep, anyway - and focus your marketing resources accordingly. Provide solid legal work and great service. Go visit them. Hold a client appreciation event. Unlike trying to figure out all this social media stuff, it's not rocket science.

• Is There a Sea Change toward AFAs?
  In-House Counsel Give It a Solid "Maybe" 
  by Inside Counsel
  

  Over half of in-house counsel - 56%, to be precise - say there has been a "sea change" in how fees are paid to outside counsel. Prompted by the pressure to reduce the overall cost of legal services and fueled by the ACC's Value Challenge, the time seems right to affect change. Yet, the gap remains wide between the perception of fundamental transformation and the actual practice.

• Isn't It Time That Your Firm Develops a Strategic Plan?
  by John Remsen, Jr.
  

  Do you and your partners have a written, cohesive firm strategy? Or are you merely sharing office space with other sole practitioners? Strategic planning is the key differentiator, but it's not for the faint of heart.

• Study: Location, Firm Size Key to Billing Rates 
  by Ross Todd, Law.com
  

  Here's an interesting study that puts law firm billing practices under the microscope. It examines invoices received by 36 large corporate clients finds that location and firm size - not lawyer expertise - are the biggest determinants of a lawyer's hourly rate. It also concludes that 75% of proposed rate hikes are accepted, and that a lawyer with the title of "partner" can charge up to $100 more per hour than an "associate" with the same experience.

• Alternative Billing Ideas 
  by Audrey H. Rubin
  

  Alternative fee arrangements (AFAs) are a hot topic these days. Just about every agenda at law firm management conferences over the past few years has at least one or two sessions on the issue. The Association of Corporate Counsel (ACC) seems to be deadly serious about them, too. Yet, most law firms are not in a very good position to act confidently. This article explains AFAs in simple and easy-to-understand terms.

• Keep an Eye on Your Firm's Billing Practices
  by Law 360
  

  According to research conducted by Samford University's Cumberland School of Law, 55% of lawyers in private practice admit to overbilling on occasion. The temptation only becomes more severe as there is less work to be dome. Don't let this happen at your firm! Not only is the practice unethical, it may also cause irreparable damage to one of your firm's most valuable assets - its reputation.

• 15 Recession-Response Tips
  by Linda Oligschlaeger
  

  Recession or not, this article from Law Practice magazine includes fifteen really good ideas for lawyers of law firms, regardless of firm size or practice mix. Many of Linda's suggestions focus on client service and business development. None of them involve rocket science.

• Small Firms Had It Right All Along
  by Law Office Management and Administrative Report
  

  Smaller and midsize firms performed much better than their “BigLaw” counterparts during the recession according to this article summarizing the findings of the Small Law Firm Economic Impact Report 2009. The reason? Less leverage, lower rates and better service. It also reports that 86% of small firms (defined as 10-90 lawyers) have had no layoffs in the last six months, and that 83% intend to maintain current compensation levels for lawyers and staff in 2009. The article appears in this month’s issue of IOMA’s Law Office Management & Administration Report. Click here to purchase the full report for $399. 

• A Broken Business Model
  by Joel Henning
  

  Henning asks "Will it take a revolution to change the way law firms operate?" Will today's current economic crisis force law firms to rethink the old model of annual hourly rate increases? Radical ideas may not only require a change in business model, but a change to the code of professional responsibility.

• Dealing with the Downturn: How Law Firms Can Meet the Challenges and Exploit the Opportunities
  by Stephen Armstrong, John Claydon, Tony King and Norman Letalik
  

  This two-part Lex Mundi article focuses on what law firm leaders can do to deal with the downturn through both aggressive law firm economics and strengthening client relationships. The suggested practices can help firms survive the downturn and strategically position themselves for the recovery.

• Do Law Firm Compensation Systems Drive Profitability?
  by Edge International
  

  While there is certainly no such thing as the "right" compensation system, here's an interesting article from our friends at Edge Group concluding that formula-driven compensation systems hurt firm profitability.   

• Legal Strategy 101: It's Time for Law Firms to Re-Think Their Business Model 
  by Wharton School of Business
  

  This fascinating article from the Wharton Business School asserts that the global recession is forcing law firms to change the way they do business. 

• What is Your Law Firm Worth?
  by Peter A. Giuliani
  

  Determining the value of your law firm is much more complicated than you think. See this article to find out why.

• Ensuring Long-Term Firm Profitability – Folks, It's Not Just the RPL!
  by Peter A. Giuliani
  

  Giuliani looks at the issue of law firm profitability – not just in the “short run,” but more importantly, over the “long run.”
  

• Is Mandatory Retirement a Fading Relic?
  by Peter A. Giuliani
  

  Should law firms require partners to retire at a certain age? Setting aside any legal issues (age discrimination anyone?), is this an archaic practice or is it critical to firm succession planning? This article argues that retirement has nothing to do with a partner's age.

• A Primer on Computerized Case & Matter Management Systems
  by Andrew Z. Adkins, III
  

  Your firm's case management system is the backbone of your organization. Whether you use it to calendar deadlines and court dates for your litigation practice or to track your firm's experience in a particular area of law, you can't afford to overlook this important tool. Here's an unbiased primer to guide you from selection to training and implementation.

• Outsourcing Your Law Firm’s Information Technology
  by Andrew Z. Adkins, III
  

  Should your firm outsource its IT department? As the first sentence of this article reveals, the decision can be a real pain. Better inform your decision by taking an honest assessment of how your much technology your firm is currently using and how many people are using it. This read will help you consider all the options.

• Wasted Time and Money: The Top 10 Ways That Firms Squander Precious Marketing Resources
  by John Remsen, Jr.
  

  Counting down the Top 10 ways that law firms often squander their marketing resources. Is your firm guilty of any of these?