5 Strategies to Increase Law Firm Profitability in 2021

With the New Year comes an opportunity to re-energize your people and help your firm achieve its profitability objectives. The pandemic has created new opportunities which you can capitalize on as well.

Update Your Firm’s Business Model

The pandemic has created an impetus for law firms to accelerate remote working options and they have invested heavily in new technology to facilitate remote working as a result. This has spurred some firms to take this further and move to remote hybrid models which allow them to access talent they wouldn’t be able to access otherwise. The remote hybrid model usually includes a central hub with “spokes” out to remote partners who may be distributed in other states, provinces or countries. The advantage is that firms can now provide clients with top talent to meet their needs without the cost of setting up new offices in these jurisdictions.

Update Your Firm Governance Structure

Many firms are still run as democracies where every partner has an equal say in the running of the firm. Often firms have an assigned managing partner who is handling the firm’s management and administrative matters but does not have the authority to make optimal operational decisions on a timely basis. The managing partner’s job description should be updated to provide her the authority to make the best operational decisions and be rewarded accordingly. Firms that make this change usually increase their firms’ profit per partner significantly on a long term basis.

Review Associate Profitability

Do a profitability analysis of all associates taking into account all direct and overhead costs. Many firms find that a significant number of their associates are not profitable. That’s due to either a lack of production or work not being delegated from partners to associates. This may also require adjustments to your partner compensation system to incentivize partners to delegate more work to associates.

Create a New 5 Year Firm Strategic Plan

Many firms don’t have a written strategic plan. Create a new vision for your firm and agree on goals and strategies to achieve your vision. This will help you prioritize your goals and focus your planning efforts in an optimal way.

Update Your Partner Compensation System

Along with your new strategic plan, update your compensation system to motivate partners to align their personal goals with firm goals. Once you have firm goals established, your updated partner compensation system will help the firm achieve its goals.

These 5 strategies will help set your firm up for success in 2021. Please call me at (604) 512-8104 if you have any questions and I’d be happy to provide further information on implementing these strategies.

Law is a Buyers’ Market

Another great interview by Jacky Wetzels of salesmoves, this time with Jordan Furlong on his new book “Law is a Buyers’ Market”. The interview covers some of the main topics contained in Jordan’s book, including:

  • Future of Law Business
  • Law Leadership
  • Future Proof Law Business Skills
  • 3 Steps for Successful Change

Jordan outlines his thoughts on the dramatic changes coming to the legal industry. One of the main themes of the book is that law firms will look very different in 10 or 15 years than they do today. Law firms will consist of many more “non-lawyers”, including “legal process engineers” and consultants of various types. I can see more multi-disciplinary oriented firms as well in the future.

In the future, law firms will be much more client-focused and fixed fee billing will encompass 50% of total legal industry billings. Successful lawyers will receive more business skills training and will understand their clients’ businesses thoroughly. There will be a much more clearly defined division of labour where every member of the firm will fulfill a specialized role. Law firm leaders will run their firms like a business and will spend the majority of their time on management, not legal work.

See the full interview here.

 

 

 

Panel Discussion – Profitable Practice Management

I was honored to be asked to speak at Dye & Durham’s October 6, 2016 “Here and Now of Legal Innovation” event in Vancouver. I participated in the panel discussion on “Profitable Practice Management for Partners and Business Managers”. Here is the text of my presentation at the event:

“I’ll be talking about some of the major trends that impact Canadian law firms today. My focus is on changes in the business model and how law firms must respond to the current challenges to maintain their profitability.

So, what’s changed in the last 10 years?

The first big change is the dramatic arrival of the global law firms in Canada, marked specifically by Norton Rose’s blockbuster move in 2011 when it acquired Macleod Dixon and Ogilvy Renault in one fell swoop and has now completed its sweep across Canada with its recent acquisition of Bull Housser here in BC. The arrival of global law firms like Norton Rose and Dentons has changed the Canadian legal landscape in a big way. This trend is leading to more consolidation of law firms in size and fewer firms, as regional and midsized firms are being gobbled up and shrinking quickly in numbers.

The second big change is the re-awakening of the Big 4 accounting firms in the legal market, with examples such as Ernst & Young moving into commercial law work and Deloitte’s recent acquisition of Conduit Law. The Big 4 accounting firms are ten times the size of the biggest law firms and will be a major force in redefining the legal industry in the coming years.

The third big change is the movement towards forming NewLaw firms such as Cognition and Conduit law. These firms focus on being outsourced general counsel and have reduced their overheads dramatically by working in client offices or virtually as required. They are aggressively using fixed fee billing to cut legal fees and are taking work away from large and small firms. Of course, Conduit is now affiliated with Deloitte, so this partnership will have even more disruptive impact now, and law firms of all sizes should be concerned.

The fourth big change is the rise of alternative fee arrangements (AFAs) and fixed fee billing. This trend has been picking up steam in the US and Europe since the 2008 financial crisis, but not so much in Canada until recently. With the continued proliferation of global law firms and Newlaw firms, fixed fee billing should continue to build in Canada and we’ll catch up fairly quickly.

The trend toward more fixed fee billing also puts much more emphasis on efficiency and has driven the trend towards more legal project management in large and small firms.

How can your firm lead in the next 10 years?

To respond to the above changes, Canadian law firms of all sizes must do the following:

  1. Centralize your management structure and give more power to your Managing Partner to drive strategic planning and execute the firm plan. Firms must recognize and compensate for firm and practice group management in a much bigger way. Firms must focus their practices to meet specific client needs, be more client-centric and be much more selective in the clients they take on to maintain their profitability.
  2. Restructure your business model in response to the new competition from global, accounting and NewLaw firms. You need to carefully examine how to reduce your costs and change your staffing mix to optimize use of the technology. The days of levering work down to junior associates at high billing rates and getting clients to train law firms’ junior lawyers are over. Processes must be re-engineered in conjunction with the technology.
  3. Hire business savvy lawyers, not just brilliant academics. Clients want lawyers who can help them solve their business problems, not just their legal problems.
  4. Offer value based and fixed fee billing to your commercial and litigation clients. Firms that hesitate will be quickly overtaken by the new competition and will lose their best clients.
  5. Revamp your compensation system to recognize partners’ firm building tasks such as training, project management and building the systems required to increase efficiency and effectiveness using all this new technology.

And finally, firms must consider client goals and KPI’s and focus on helping clients achieve their business goals, not just the law firm’s profitability goals. Your focus should be on attaining a long term strategic partnership with your clients, which means offering better value and innovative ways of delivering legal services.”