Law Practice Management Asked and Answered Blog

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Nov 24, 2009

Competitive Business Models: Competitive Strategies and Ideas For A Personal Injury Plaintiff Firm

Question: We are a five attorney personal injury plaintiff firm in the midwest. In the last few years we have gone through tort reform, increase competition from other law firms doing extensive advertising, and now trying to weather the recession. From a profitability standpoint – we are holding our own. However, we are concerned about the future. While we do not want to be a high volume PI advertising factory – we believe we need to be doing something different. Do you have any suggestions on how we should plan our future?

Response: The majority of our PI law firm clients are advising that they are having to work much harder at getting clients and investing more heavily in marketing – both time and money. PI firms were feeling the most of these challenges before the recession. However, the recession may accelerate the pace with which law firms reevaluate existing processes and consider new business models. PI firms may want to begin by:

  1. Develop a firm strategic plan and individual attorney marketing plans which include aggressive network/contact plans for past clients, attorney referral sources (non PI attorneys), attorney referral sources (other PI attorneys), and other referral sources.
  2. Evaluate the feasibility of adding an additional practice segment to reduce the level of risk in the case portfolio and reduce cash flow variability.
  3. Reduce case portfolio risk and improve case profitability by implementing a case intake system whereby all new cases over a specified level of projected case value are reviewed and approved by the partnership (or a client intake committee) in order for the case to be accepted by the firm. In other words – don't let one attorney expose the entire firm to either excessive levels of case risk or case investment (time and client cost advances) without other partners having a say on the matter.
  4. Analyze the profitability and return on each case and ascertain what can be done differently on future cases. Metrics might include effective rate, return on LOADSTAR, dollar case profit after allocation of all appropriate firm overhead, etc.
  5. Review and measure present marketing investments (time and money) and determine what is working and what is not. Reallocate resources if appropriate.
  6. Insure that you are using an appropriate mix of marketing tools in your program.
  7. Consider increasing marketing investments (time and money). Suggest a marketing budget be developed in the range of 8-12 percent of fee revenue. Also suggest that non case production (non-billable) time be budgeted for business development and marketing activities as well.
  8. Look into defensive advertising.
  9. Insure that you have a first-class website that goes deep and demonstrates expertise.
  10. Maintain a yellow page presence – but gradually reduce investment and shift into website and other online vehicles.
  11. Find ways to enhance the client's experience and deliver exceptional client service.
  12. Use exceptional client service and bedside manner as a primary means of differentiating you from your competitors. Under Promise – Over Deliver in everything you do for the client.
  13. Make your office client friendly.
  14. Use end-of-case satisfaction surveys to measure the client's experience with the firm and to improve future service.

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

Nov 24, 2009

Getting to the Next Level

Question:

I am a member of a three attorney firm. I think that we know where we are as a firm, where we want to be, but we don't know how to get to the next level. Do you have any ideas?

Response:

Rather than following the pack – attorneys need to find ways in which their firms can "dare to be different."

Many attorneys are providing the same service – solving the same sort of legal problems for their clients using similar tools strategies/approaches. To many clients – attorneys all look the same. What can you do to stand out?

Marketing is about more than just promoting the firm to get clients. It is also about deciding on:

  1. What services to offer, where, and to whom? Sometimes less is more – by focusing on fewer areas of practice. Just because a law firm focuses on say three areas of practice – doesn't mean that it does not handle matters in other areas. It just means you are building you brand around the three core areas. These are the areas you primarily promote, speak about and write about. Broader geography?
  2. Pricing. Not just the amount to charge but how to charge. Clients are asking for budgetary certainty? Get creative.
  3. Delivery and producing the service. Are you doing all that you can using technology, staffing, work processes, etc. to minimize the cost of producing your services? If you are – aggressively promote it. Office location, client site visits, etc., all come into play here. 
  4. Promotion (which can include advertising, e-newsletters, newsletters, websites,
    networking, seminars, press interviews, social networking on the internet, etc.)

Effective marketing requires a mix of the above elements in your plan and then effectively communicated.

Many attorneys suffer from random (unplanned) acts of marketing or business development. To be effective you need to be well focused, have a plan to focus the firm's efforts, and be disciplined and make excellent use of your professional time. Often the largest marketing investment is not advertising or the cost of other marketing vehicles – it is the cost of you non-billable (or investment) time.

A business/marketing plan (10 pages or less) for the firm can do wonders.

Sit down with the other attorneys in the firm, do some brainstorming away from the office, and put a plan together. Then work the plan.

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

Nov 17, 2009

What Can We Do To Be Different

Question: During a recent firm meeting one of our partners asked what the firm could do to be different than every other law firm. What are your thoughts?

Response:

Creating a competitive advantage that is sustainable over time is difficult at best. It is so easy for your competitors to copycat your recent innovations. Clients of law firms advise us that they hire the lawyer – not the firm. However, this only partly true. The firm – its image – its brand – provides a backdrop for the individual attorneys marketing efforts as well – makes marketing easier – and provides backup and bench strength that many clients require before retaining a lawyer.

In general the law firm is faced with the dual challenge of developing a reputation (brand) at both the firm and the individual lawyer level. In general – client delivery practices and behaviors that are part of the firm's core values and have been burned into the firm's cultural fabric are the hardest to copycat.

Areas in which you can consider differentiation strategies:

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

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

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