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.

Is Growth or Outsourcing the Best Option for Your Law Firm?

I recently provided my comments in James Careless’ article “When to Expand Your Firm, When to Outsource” in CBA Practicelink magazine. I said that “growth is only something to be looking at if it’s going to achieve particular strategic goals such as increasing profitability”. I have found that many firms set a growth goal for their firm without considering which practice or industry areas they should focus on growing in order to optimize the firm’s overall profitability.

The first step all firms should take before growing is to prioritize the strategic goals which will help them achieve their overall vision. Growth is just one of several strategic goals or strategies that firms might undertake in order to achieve their vision. If increasing profitability is a strategic goal, as an example, then growth might be one of the tactics your firm may take to achieve that goal. Then the question is where to grow and how to grow. Is the growth need permanent or temporary? In some cases, you can grow your firm’s capabilities and strength in certain practice areas such as personal injury by using outsourcing providers or freelancers. Often your costs can be significantly lower by using outsourcing providers and you risk less capital if the work is transitory but the opportunity is too good to pass up.

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.