Law Practice Management Asked and Answered Blog

Category: Contingency

Mar 14, 2017

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Sixteen Characteristics of a Successful Contingency Fee Law Firm – A Guide for New Managing Partners

Question:

I am a newly appointed managing partner for an eighteen attorney law firm in Dayton, Ohio. We are a employment law litigation firm that represents plaintiffs on a contingency fee basis. We have been in business for five years and we are facing severe cash flow and profitability challenges primarily due to lackluster contingency fee outcomes. Do you have any guidelines or suggestions as to what we should be aiming for?

Response:

In general I find that successful contingency fee law firms are:

1. Sustainable over the long term
2. Are disciplined, have order and common vision, and manage the firm like a business.
3. Have long-term talented people that are passionate and team players.
4. Organized and have structure.
5. Have the right people on the bus and in the right seats.
6. Meet on a structured basis.
7. Have a long-range plan.
8. Have a budget.
9. Have fee goals for each producer.
10. Have a marketing plan.
11. Are consistently profitable.
12. Have solid cash flow.
13. Use metrics to manage the firm.
14. Are financially stable.
15. Have a succession plan.
16. Are diversified – both practice areas and case portfolio.

I would use this as sort of an initial performance checklist. You may need to examine your case portfolio and your contingency fee case risk profile and look for ways to diversify your case mix.

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May 06, 2015

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Law Firm Contingency Fee Practice – Surviving the Cash Crunch

Question:

Our firm is a six attorney personal injury plaintiff located in Kansas City. We have been in practice for 20 years and the firm has been very successful. However, in the last few years the cases are getting larger, more complex, and really putting a drain on our cash flow. We are always into our credit Line. You thoughts would be appreciated.

Response:

Cash flow has always been a challenge for contingency fee practices. However, times are getting harder. For personal injury plaintiff firms insurance companies are refusing to settle cases, stretching out timelines for settling cases that they do settle, paying less, and becoming even harder to deal with. Other contingency fee practices are also facing similar challenges and everyone is finding it harder to find adequate lines of credit. Many firms that were once 100% contingency fee practices are looking for ways to improve cash flow implementing different fee arrangements or by adding non-contingency fee practice areas.

I suggest that you evaluate ways that you might re-balance your case portfolio to say 60% contingency/time-bill mix. You might consider:

1. Billing and collecting up front for all client costs even if the fee is contingent.
2. Flat fee paid up front for a certain segment or phase of work – then contingency fees for the rest of the work.
3. Actively marketing and targeting certain small business firms, establishing relationship, and seeking out defense employment work billed on a time-bill basis.
4. Adding a different practice area that would not be billed on a contingency fee basis.
5. Bring in a another attorney with a book of business in a complimentary non-contingency fee practice area.

Review your case pipeline report and your work habits to insure that you are putting the right effort and mix into the cases that you have so that when your time bill matters come up for billing at the end of the month – all can be billed.

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

 

Nov 04, 2014

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Law Firm Attorney Compensation in a Contingency Fee Firm

Question:
 
Our firm is a five attorney personal injury plaintiff law firm located in San Francisco. We have 2 equity partners, one non-equity partner and two associates. One hundred percent of our fees are contingency fees. Our attorneys work on some cases together. We do not keep time sheets.

The two equity partners are compensated based upon their ownership interests and this has worked well. We are looking to improve our compensation for the non-equity partner and the two associates. Currently they are paid salaries and a percentage of firm collected fee revenue over a certain threshold. We feel that they have not been profitable and we have been overpaying them. We would appreciate your thoughts.

Response:

Personally I think that a percentage of firm revenue or profit should generally be reserved for equity partners or shareholders. There should be a reason for them to want to become equity partners. I would tie the majority of their compensation to individual performance – client origination revenue, working attorney production revenue, and responsible attorney revenue, and case profitability - being the primary factors. Develop specific guidelines for client origination (rules for the credit – direct effort of the attorney versus the brand of the firm). Since you don't keep time sheets you will have to develop some method for allocating the working attorney credit when attorneys work together on cases – subjective determination of value and contribution to the case, etc. Without timesheets it will also difficult to determine profit at the matter/case level. Decide how you want to weigh origination, working attorney, responsible attorney and case profitability and then use these to determine a compensation percentage to be used for overall compensation or bonus.

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

 

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