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Aug 29, 2018


Law Firm Effective Rate Improvement

Question:

I am a partner with a sixteen-attorney firm in downstate Illinois and a member on our three person management committee. My responsibility on the committee in overseeing the firm’s finances and supervision of the firm administrator pertaining to accounting and finance. In reviewing our financial reports I have noted that our effective billing rates (realization rates) are not what they should be. We are reluctant to raise rates to our clients. What other steps can we take to improve our effective rates?

Response:

The most direct way to improve rate performance is to simply increase rates at an amount at least equal to inflation and to do so often (at least once a year). Without regard to whether this can be done, there are several other important techniques such as:

  1. Managing the client intake process
  2. Tailoring rates and billing policies to specific clients and matters
  3. Managing rate and billing adjustments
  4. Billing often and keeping the client informed
  5. Tying partner reward structure to rate performance
  6. Reporting rates achieved

Managing the client intake processes is probably the most important technique for improving rate performance. Intake management means:

Here are some ways to accomplish this:

  1. Effective preacceptance interviews
  2. Credit checking or prior payment history review
  3. Up-front discussions and arrangements
  4. Liberal use of retainers and advances for costs
  5. Early conflict of interest checks 
  6. Use engagement letters; and
  7. Management review of significant new clients or matters except accepted.

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John W. Olmstead, MBA, Ph.D, CMC

 


Posted at 08:54 AM in Financial Management
Tags: Effective, Firm, Improvement, Law, Rate

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