Law Practice Management Asked and Answered Blog

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Nov 08, 2009

Profitability Improvement Ideas

Question: What are some ideas that our eight attorney should be doing to improve profitability?

Response:

Use the RULES formula to focus your effort.

R = Realization rate or effective rate per hour.
U = Utilization – billable hours or case production hours.
L = Leverage – ratio of partners to other timekeepers.
E = Expenses – overhead.
S = Speed – collection cycle – converting work to bills and bills to cash.

Profitable law firms have an appropriate mix of each of these profitability levers. Compare against internal and external benchmarks and determine which of the levers require attention. Usually expenses is not the primary problem – in fact many firms should be spending more in the form of investment. Usually the primary focus should be on improving:

Many firms need to increase case/matter volume through better client development and marketing to be able to obtain higher leverage ratios.

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

Oct 02, 2009

Pipeline Management

Question:

I have recently read several law firm management articles that have referred to "Pipeline Management". What exactly does this mean and what is the implication for law firm management?

Response:

Pipeline management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relatiionship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.

I often also refer to Pipeline managment in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm's Pipeline (from prospects to cash): 

By comparing these dashboad statistics to a prior month, quarter, or year – you are able to avoid financial surprises down the road.

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

Oct 01, 2009

Are These Good Times to Innovate and Dare to Be Different

Question:

We have had recent discussions in our partner meetings as to whether in these challenging economic times we should play it safe or to step out and innovate.

Response:

As far as the economy – several legal industry sources are advising that the economy may be turning the corner for law firms.  According to a PricewaterhouseCoopers Survey – the Worst of the Recession is Over for Law Firms. http://bit.ly/VUEbM. Hildebrandt also recently announced an improvement in the Peer Monitor Index. http://www.hildebrandt.com/Pages/default.aspx.

While all of us need to be cautious concerning playing games of chance and gambling with our professional practices – this is an excellent time to re-examine business models and approaches of the past. Many large and small firms alike are doing just that. Clients are looking for more value for their fee dollars and better client service. Firms that are daring to be different are experimenting and exploring:

This recession may have been more that just another recession – it may have been a management lesson for us all – resulting in permanant structural changes to how legal services are produced, delivered, and consumed.

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

Sep 28, 2009

The Primary Financial Problem For Most Small Law Firms

Question: Our firm, a seven attorney personal injury firm in the southwest, seems like we can never get to the next level financially. Do you find that excessive overhead (expense) is the major problem for law firms?

Response:

Not really. In fact, in many cases I find that law firms should be making larger investments in their future and spending more money. Often investments in marketing, talent, and technology are insufficent in many firms. The problem in most firms is insufficient leveraged fee revenue. In other words – many small firms practitioners – only think in terms of whether they have adequate work to keep themselves busy – they do not think in terms of being a net exporter of work so they can keep themselves busy plus two or three other attorneys and or paralegals. A well leveraged practice is what takes you financially to the next level. In reality – more marketing is needed – to create a sufficient volume of work to support this leverage. Once this is accomplished – attorneys must learn how to manage and supervise others – and the compensation system must shift emphasis from personal working collections to responsible (billing attorney) collections.

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

Sep 02, 2009

Is There a Number One Tip For Improving Client Service?

Question: We recently completed an informal client survey and were surprised at some of the feedback. Our scores were lower than anticipated. Clients believe that our services took longer than expected and fees were also higher than expected. We work as dilligently as we can for our clients and I don't see how we can improve turnaround or reduce legal fees. Suggestions?

Response: Based upon client surveys that we do for law firms we find that one of the biggest problems is that the attorneys are doing a poor job of managing client expectations. The key is to under promise and over deliver. I suspect that upon the initial client meeting you are under estimating the timeline and low balling the fee range. Increase the promise – timeline and fee range and then shoot to deliver under that range. This will do wonders for improving the client relationship.

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

Sep 01, 2009

Staying Ahead on Retainers

Question:

I do a good job of collecting initial retainers before doing work for my family law and criminal clients. But then I fall behind on retainer replenishments. Do you have any thoughts or ideas?

Response:

This is a common problem I hear from clients in all practice areas. Here are a few suggestions:

The key here is assigning someone the daily responsibility of monitoring retainers, having a good time and billing system, and using the managment reports from the system to stay on top of retainer useage.

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

Aug 26, 2009

Should Time Spent Managing the Firm Count in Partner Compensation Systems

Question: I am one of the founding partners in a 25 attorney law firm in the northeast. We have three equity partners, six non-equity partners and sixteen associates working in the firm. We focus totally on litigation. Each of us three equity partners have equal ownership percentages and since day one (20 years) have divided firm profits equally along those lines (1/3, 1/3, 1/3). We each put in the same amount of effort and work – but since I am managing partner – my fee collections are much lower than those of the other two equity partners and I am concerned that they may feel that I am not carrying my weight since my fee collections are lower. How should this be handled in our compensation system?

Response:

This is a common question that we hear often. It sounds like you are still allocating income in the same manner that you did when the firm first started. Often when a firm grows the partner compensation system needs to be reexamined when and if partner roles or contributions change. As the firm has grown I suspect that your time spent on management activities has grown as well. I, as well as many other legal management consultants, believe that firm management (running the business) is as important as generating client fees and should be so considered in partner compensation systems.

We have numerous law firm clients where at least one or more of the equity partners "run the business" and do not provide billable client services at all.

Management time should not be used as a non-billable time category (excuse) to simply "dump" time. Your partners have a right to expect results that improves the bottom line and the size of the pie for all.

Here are a few suggestions:

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

Jul 15, 2009

Lawyer Networking As a Marketing Strategy

Question:

I am having problems with effective client development. I believe that I need to do more networking and become involve in professional organizations. Suggestions?

Response:

Definitely. However, here are a few ideas and guidelines.

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

Jul 15, 2009

Newsrooms on Law Firm Websites

Question:

More and more law firms are using web sites. Where are these sites falling short? What about news rooms?

Response:

There is another audience besides clients and prospective clients. That audience is the media. Law firm web sites need to direct more focus on the media and the recognize the benefit of effective public relations. Law firm web sites should incorporate first-rate online press rooms.

The first wave of law firm web sites was often the brainchild of the marketing department or the attorneys. As a result reporters were often forgotten in the rush to publish.  However, for most firms, the news media is a clear and well-defined audience. What type of information should we provide that is key to this audience?

Contact Information

Too many web sites bury any contact information, much less specifics on whom to call  for an “on the record” statement. Many sites, if they include any contact information, will  only include an address, phone and fax – no names.

If you want to make friends with the media, make it easy for them to call (or e-mail) you.  Whether it is a link from the home page, or an easily-found link in the “about us” or   “news” sections of your web site – give the media basic information about branch offices – along with names and phone numbers. Don’t forget the area code.

 

If you are concerned about e-mail overload, set up a special e-mail address for media  inquiries (but make sure that it is checked more than once a day). If your web administrator persuades you to use “form mail” (instead of an e-mail link) minimize the  “required” fields and tell the reporter, up front, that he/she will receive a copy of the      correspondence upon “send.” (These are two functional requirements that you should  insist upon.)

 

Archived News Releases

 

This seems like so much common sense that I don’t understand why many have foregone  this courtesy. Not only is it a boon for reporters (90% say they use the web for research)  or others who are researching your firm, industry, or a event of the day, but it also allows  you to let the world know what your organization has said about any given topic. Think of it as self-publishing.

 

Search engines may or may not be a good idea for archives. I suggest taking a little time  (so that reporters don’t have to) and organizing news releases in annual archives as well as subjective ones. Some releases will fall into more than one subject category. Use hyperlinks and the web.

 

Downloads

 

Your web site allows you to have a 24×7 presence for the media, which is especially  crucial for firms with a global presence. Think about common requests that could easily be delivered via the web:

 

If you do set up a special section for the media, as a general rule, don’t require registration or “credentialing.” There are exceptions to this rule, but they are in the distinct minority for most firms.

 

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

Jul 15, 2009

Should We Merge With Another Law FIrm

Question:

We are a small six attorney litigation firm. We have two partners and three associates. One of the partners wants to retire within the next five years. The other partner will continue to practice for another 10-15 years. We love practicing law and consider ourselves to be very good lawyers. However, we find firm management and administration to be a challenge and we are not skilled in this area nor do we want to be. We have a good book of business and clients. Recently, we began discussing the possibility of merging with another law firm. What are your thoughts about firm's like ours merging with another law firm?

Response:

Obviously, merger or acquisition of law firms is becoming more and more commonplace. Hildebrand is projecting 44 mergers (firms with five or more attorneys) in 2007. However, research indicates that 1/3 to 1/2 of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don't try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone. 

Right reasons for merging might include:

  1. Improve the firm's competitive position.
  2. Increase specialization – obtain additional expertise.
  3. Expand into other geographic regions.
  4. Add new practice areas.
  5. Increase or decrease client base.
  6. Improve and/or solidify client relationships.

I would start by thinking about your reasons for wanting to merge and your objectives. Ask yourself the following questions?

  1. Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?
  2. What is driving the desire to merge?
  3. If the desire to merge is being driven by a desire to retreat from internal problems – what have you done to address these issues internally? 
  4. Is your name being part of the firm name important to you?
  5. What are your expectations and objectives for a merger?
  6. What are you looking from a merger partner?

Make sure that you look for a complimentary fit. Since you are weak in firm leadership, management and administration – look for a partner that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm under 25 attorneys.

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

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