Tag: profitability

The Top 5 Things Law Firms Need To Do Now To Increase Profitability

Here’s some issues that are common amongst small and midsized law firms that should be addressed now to increase profitability.

1. Management

Too many firms try to run as democracies where partners have full say on which clients they work for and the type of work they do.  They’re not accountable for their actions and effectively act as solo practitioners.  This is a sure recipe for mediocrity and substandard profitability. You need to centralize management with a Managing Partner assigned the authority to screen all significant new clients for potential profitability, say no to high credit risks, and impact partner compensation to ensure all partners are accountable for their actions and performance.  The Managing Partner will also direct strategic planning and execute the Firm Plan.

2. People

You need the right people. Many firms have ill-defined partnership entry criteria and even less understanding of what it takes to remain a partner.  As a result, you end up with mediocre people and risk losing your best people to your competitors.  You need to have high-performing people to move the firm forward and achieve your firm goals and profitability targets.  Ensure your top performers are paid what they’re worth. Define partnership entry and retention criteria and enforce these criteria regularly.

3. Clients

You need to be constantly pruning your client base and upgrading your clients.  Studies show that  80% of your profits come from 20% of your clients.  You need to figure out who these high profit clients are and how to get more work from these clients. At the same time, you need to review and replace low profit clients with better opportunities.  Get a list of your top 50 clients and start reviewing them for profitability and ask them if they’re satisfied.  Do some client satisfaction interviews and you’ll generate more work from your most profitable clients simply by going through the interview process.

4. Vision

You need the “right” vision and a process for initiating strategic planning on an ongoing basis.  Start with a strategic planning process involving all partners and facilitate the creation of a new Vision and Firm Plan.  This will help direct your efforts in the most effective way and will help  increase profitability dramatically if you get all  partners to “buy in” to the new Vision.

5. Systems

You need to reward partners for cash in, not billings.  Many firms focus on volume without looking at the quality of the work being brought in and worked on.  You need to examine realization and profitability of all your clients.  To do that, you need a system to quickly determine profitability of clients and practice areas and services provided.  You also need to determine your cost per billable hour and create strategies to reduce costs and increase your profit margins.

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How To Get Lawyers To Sell

To get lawyers thinking about sales, the first step is to set up a system that rewards them for sales.  Not a revolutionary idea, but one that many firms don’t implement or implement poorly.

You need to entrench sales and marketing in the culture of the firm.  Sales is not a dirty word, it’s what lawyers must do to become partners, build a great practice and make the firm financially viable for the long term.

By simply setting up a tracking system for sales, you get lawyers’ attention.  And when you use the system to start impacting partners’ compensation, they quickly change their behavior and get down to business.  In some firms, there are partners who simply do sales and very little legal work.  They can be the most highly paid partners in the firm.  They show the way for entrepreneurial young partners, who quickly see the benefits and build their own practices and become great partners.

Some will say that tracking and origination credits systems can be divisive and encourage internal competition.  There are certainly management issues in making a sales tracking system work properly, but these can usually be easily handled.  The pros dramatically outweigh the cons in most cases.  Most firms with sales tracking systems already in place would never go back.

Track origination credits by clients and matters.  In this way, you will encourage new client development and generate business from current clients.  Studies show that 80% of your business is generated from current clients.  And encourage sharing of origination credits between lawyers and within practice groups to promote team sales efforts.  This will help institutionalize clients, resulting in longer-term retention of clients’ business and greater stability for your firm.

I’ve seen sales tracking systems in action that produce stellar results, which have helped make their firms extremely profitable.  For many firms, this is the key to really unlocking your partners’ business generation potential.