Law Practice Management Asked and Answered Blog

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Aug 12, 2014

Five Ideas for Struggling Personal Injury Plaintiff Practices

Question:

I am the owner of a five attorney personal plaintiff firm in Wheaton, Illinois. Our practice is in its 25th year of practice and we are 100 percent concentrated in personal injury. Over the years we have been very successful but over the last three years we have been struggling and revenues and profits have been flat. It is getting harder to get good cases and harder to settle and move the cases that we have. We need to approach our business differently. I would appreciate your ideas and thoughts:

Response:

We are hearing this question quite often and have provided some thoughts in past blogs and articles.

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.

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https://www.olmsteadassoc.com/blog/category/strategy/

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

Jul 15, 2014

Law Firm Advertising – Should Our PI Firm Consider TV Advertising

Question:

Our firm is a three attorney personal injury plaintiff located in Los Angeles. We started the firm fifteen years ago. Two of the three attorneys are equity owners. Our firm is a high volume/low case value practice – we currently have 500 open cases. A high percentage of our cases are settled without a law suit ever being filed. We are an advertising driven practice. While over the years we have effectively used a variety of advertising vehicles we have never ventured into TV advertising. We are considering venturing into TV and would appreciate your thoughts regarding TV advertising.

Response:

I have personal injury plaintiff law firm clients that have had great success with TV advertising and other clients that have had poor results. High case volume/low case value firms such as yours have had the greatest success. In order to be successful you must have the budget to be able to stay the course and the infrastructure to support and manage the advertising effort and to support the work and cases. The worst thing you can "dabble" with TV advertising. Here are a few thoughts:

  1. Be prepared to invest in TV advertising for a least six months – or don't do it.
  2. TV advertising can be scary from two vantage points. If it is not successful you will have invested a great deal of money without receiving an adequate return on your investment. I have client firms spending one to two million dollars a year on TV advertising. You could easily spend $100,000 to $200,000 before you find out that the investment is not paying off. If your campaign is successful you may not be prepared to handle the volume of work that could result – either in the form of infrastructure or working capital. (Cash Flow)
  3. Be prepared to respond to client inquiries 24/7.
  4. Prepare your infrastructure scalability plan. Do you have the facilities, communications system capacity, staff and other resources to handle an immediate dramatic increase in case volume if it comes? If not, how quickly can you scale up? Do you have access to the capital to finance such expansion?
  5. Measure and monitor ROI from your program and fine tune adjust your program.
  6. Use a placement agency that has experience with personal injury law firms. Solicit law firm references from other markets and call each one and discuss their results in-depth.

Like any other business venture – if you do the proper due diligence and do your homework – TV advertising can be a great investment – if not it can be a nightmare. I have seen it go both ways.

Click here for our blog on marketing 

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

 

Jul 08, 2014

Law Firm Partnership – Client Origination Expectations for New Associate Attorney

Question:

I am the sole owner of a four attorney general practice firm in Rockford, Illinois. I am 58 and realize that in the next few years I will need to begin implementing a succession and exit strategy by probably bringing in a partner. Two of the associates have no interest in partnership. However, the newest associate hired, who had his own practice for several years, does have such an interest even though he was recently hired. He is off to a good start as far as his production. However, I believe that he must be able to originate and bring in client business as well. So far his energy and focus has been totally on performing legal work. I want to get him started on the right track in order that I can make him a partner in a few years. Please provide any thoughts that you may have.

Response:

I agree that in a practice such as yours that client origination is important. I suggest that you start by laying out and discussing with him your expectations. In other words what will it take for him to become a partner – production, quality of legal work, billings, client satisfaction, and origination of new client business? Be specific and set specific goals for him and your expectations for him but also your timeline for partnership consideration. I would suggest five years. Personally, I believe his client origination goal at the five year point should be between $300,000 and $500,000 or higher. Establish baby step goals for origination – say $50,000 after year one, $100,000 after year two, $200,000 after year three, $300,000 after year four, $400,000 after year five. This will require that you track origination fee dollars in your billing/accounting system. Specific guidelines and rules regarding the attribution of origination credit should be developed. In other words an attorney should not receive origination because a client calls as a result of the firm's brand, advertising, etc. and he is passed the call because he is the only attorney in the office to take the call.

Click here for our partnership blog

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

Mar 25, 2014

Law Firm Associate and Non-Equity Partner Compensation: Is There a Cap or Ceiling?

Question:

I am the managing partner of a 16 attorney insurance defense law firm in Kansas City. We have two equity partners, four non-equity partners, and ten associates. Only the two equity partners bring in client business. Since our clients are insurance companies most of our work is new business from existing clients. Unlike other firms doing insurance defense work our billing rates are low and we have to put in a lot of billable hours and maintain a high ratio of associates and non-equity partners to equity partners.

In the past our associates stayed for a while and left after several years. As a result about the time they reached the higher compensation levels they left and we replaced them with lower cost associates. In the last few years – with the economy and the oversupply of lawyers – they are staying much longer. While we – the equity partners – want to be fair and are willing to share – we are concerned about our reducing profit margins and at what point an associate or non-equity partner's compensation is "maxed out." We would appreciate your thoughts.

Response:

Law firms of all types of practice are experiencing this dilemma. The problem is even more evident in insurance defense firms where much of the work is routine discovery work that can be handled as well by an attorney with two years' experience as by an attorney with ten years' experience at lower cost. Here are a few thoughts:

  1. Use the formula – 3 times salary as a general guide to determine where you are regarding working attorney fee production from each of your attorneys. If you are paying an associate or non-equity partner $100,000 a year salary you should be collecting $300,000. The goal is that 1/3 of each fee dollar goes to association of the attorney, 1/3 to overhead, and 1/3 to profit – this a 30% profit margin.
  2. Dig into your financials and determine your contribution to profit from each of your attorneys. Allocate all direct expenses and indirect overhead and calculate profit margin. Click here for an illustration on how to allocate overhead
  3. Profit margin should be between 25%-30%.
  4. Use the margin to establish a theoretical salary limit in absence of other contributions such as management, client origination, additional business from existing clients, etc.
  5. Cap salaries with the exception of periodic cost of living adjustments.
  6. Use a client or referral commission bonus, production/hours bonus, and bonus pools to reward exceptional performance.

 Click here for our blog on compensation

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

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