Law Practice Management Asked and Answered Blog

Category: Law

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May 10, 2016

Law Firm Client Relations: Lost Client Survey

Question:

I am a member of our firm's executive committee. We are a 16 attorney business transactional firm in Seattle. Recently the firm has lost several key clients and we want to know what we can do determine why this happened and what we can do to improve client retention. I would appreciate your suggestions.

Response

I would conduct a lost client survey. This type of survey is used if your firm wants to know why you have lost a particular client or group of clients. With this survey interviews are conducted (usually by telephone or in person) with clients that no longer do business with your firm. Let the client know that you are sorry that he or she is no longer doing business with your firm and that you are interested in learning from your mistakes. Understanding your client’s reason for leaving will help you make improvements for future clients. One of the greatest benefits for this type of survey is that you are often able to discover the specific reason a client left.

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

May 03, 2016

Law Firm Management Structure – Firm Administrator and Marketing Director

Question: 

I am the founder and managing partner of a 27 attorney firm in Dallas Texas. I own 90% of the stock in the firm. I have a three member management committee that serves as a sounding board, a firm administrator, and several people in accounting that work for the firm administrator. We are anticipating hiring a marketing director and are trying to think our way through how to structure this new position as well as future management positions down the road. I would appreciate any thoughts that you may have.

Response:

It will depend on the depth of experience of the marketing candidate that you hire and the level that you want them to perform. If you hire a heavy weight, they will be expected to have "director" in their title" and you will want them to have the respect of other attorneys in your firm, your clients and prospective clients. Therefore, they may carry a title such as Director of Marketing, Director of Client Development and Marketing, etc. If this is the case this position should report to either you, the managing partner, or the management committee, not the firm administrator. Depending on the level of your administrator it may be appropriate to retitle the position as Director of Administration and have it also report to you, the managing partner, or the management committee. Before long you may need a Human Resources Director and when that time occurs that position also could report to the you, the managing partner, or the management committee. Accounting and administrative staff would report to the Director of Administration, marketing staff would report to the Director of Marketing, etc. I would develop job descriptions for each position as well as your position and the management committee.


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

Apr 26, 2016

Law Firm Billable Hours in an Insurance Defense Firm

Question:

I am the managing partner of a 12 lawyer insurance defense firm in Oklahoma City. We have 4 partners and eight associates. While we have grown over the last five or six years by adding associates our profitability has remained flat. We feel that we are not getting the billable hours that we should out of our associates. What are other firms like ours getting out of their associates in terms of billable hours?

Response:

Most of my insurance defense firm clients expect a minimum of 1800+ annual billable hours from associates and partners. Often 1800 is a requirement to remain employed and the minimum threshold to be eligible for a performance bonus. Often I see billable hours at 2000 to 2200 in insurance defense firms.

This goal is getting harder to achieve. Insurance companies are now managing hours as well as rates and outlining their expectations in their billing requirements and guidelines. Law firms can no longer "lean on the pencil" like they used to do in the old days. In addition, if business and file assignments are down you can't expect associates to work on work that isn't there.

If you are not getting 1800 hours – the problem may not be associate work ethic – it may be that more time needs to be invested by the partners in focused business developed and bringing in more work.

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

Apr 12, 2016

Law Firm Client Satisfaction – Exceeding Client Expectations

Question:

I am owner of a four attorney firm in Amarillo, Texas. We represent both individual and institutional clients. Recently, we have had numerous complaints from clients advising us that our services took longer than expected and fees were also higher than expected. I would appreciate your thoughts?

Response:

Based upon client satisfaction surveys (telephone interviews) 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. Your clients get frustrated when you promise one thing (timeline or fees) and the result is very different – especially when the work takes longer than promised or the fees are higher. Even though you don't structure it as a promise your clients take it that way. 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. Reduce the promise – increase the - timeline and fee range and then shoot to deliver under that range. This will do wonders for improving the client relationship.

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Apr 05, 2016

Law Firm Debt – Impact of Debt and Other Liabilities Upon Future Growth Options

Question:

I am a member of a three member management committee of a 16 lawyer firm located in Akron, Ohio. We have 10 partners and 6 associates. Several of our partners are in their 50s and 60s. Recently, we have had discussions with a couple of potential merger partners and laterals and in all cases they have backed out advising us that they were uncomfortable with our balance sheet. What can we do to better position ourselves. We desperately need to bring in new talent with books of business?

Response:

First there are the obvious balance sheet items – bank debt, large tapped out credit lines, equipment leases and other liabilities. Then there are the items that are not recorded on the balance sheet – namely unfunded partner retirement buyouts and long term real estate leases. These are often major deal breakers in mergers and scare away laterals. If you have bank and other debt on the balance sheet work at cleaning it up. More importantly if you have unfunded partner buyouts begin either rethinking the desirability of these programs or begin funding this liability now with a goal of the liability being totally funded over the next five to seven years. Then shift to a retirement program that is totally funded. Unfunded partner retirement programs are becoming a thing of the past.

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

 

Mar 30, 2016

Law Firm Compensation for TIme Spent by Partners Managing The Firm

Question:

Firm has three partners, two associates, and 2 staff members. We are a new firm and just started in practice a year ago. We are equal partners and we allocate compensation equally based upon these ownership interests. We believe the system has worked well for us but we been considering whether one person should handle all the management duties and if so how that person should be compensated. We would appreciate your thoughts.

Response:

First I would identify the duties and hours involved and make sure the duties are managing partner level duties and not office manager level duties that should be handled by staff. Delegate or consider hiring an office manager for duties than can be delegated. For duties that can't be delegated I would suggest you that a look at the hours that will be required and determine a  fixed additional compensation amount based on expected hours and the partner's standard billing rate. The partner's compensation would be his/her fixed additional compensation amount plus his/her allocation based upon ownership interest.

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

 

Mar 22, 2016

Law Firm Partner Retirement Buyouts – How to Keep from Breaking the Bank

Question:

Our firm is a 14 lawyer firm in the Boston suburbs with 4 founding partners and 10 associates. Two of the partners are in their 50s and two are in their 60s. Several years ago we adopted a retirement buyout plan for the founding partners where each partner upon retirement is paid the balance of his cash-based capital account and a multiple of one times an average of his last three years earnings paid out over a five year period. I am concerned that when partners begin to retire the retirement payouts will place undue stress on operating funds and the firm's ability to continue to be successful. I would appreciate your thoughts.

Response:

If nothing else you should consider a cap that places a limit on how much can be paid out in a single year where aggregate payments to all retired partners in any one year are capped at 10 percent or less of distributable net income. Any obligations that cannot be paid in one year as a result of the cap would be rolled forward to the next year also subject to the same cap.

Unfunded plans can present problems down the road if they become unaffordable for the next generation of attorneys as they have to be funded out of future earnings. You should look into ways to fund your partner's retirements as much as possible through 401k and other retirements plans, life insurance policies (on each of the partners that can fund the buyout in the event of death or where paid up cash values can be used upon retirement to apply toward buyouts, and sinking funds (Rabbi Trusts, etc.) where funds have been set aside out of current earnings.

We all have been witnessing what is happening with governmental unfunded pension programs. The same thing is happening with law firms that have unfunded retirement programs as baby boomers are retiring in record numbers.

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

Mar 15, 2016

Law Firm Alternative Billing – What Do Clients Think

Question:

Our firm is a 18 attorney firm based in Tucson, Arizona. Our practice is a boutique general liability defense firm. Our clients tend to be self insured large corporations and smaller business firms. Currently all of clients are billed by the hour. Recently we have been discussing whether we should propose an alternative billing approach to our clients. We would be interested in your thoughts.

Response:

I do not want to discourage alternative billing – there are a lot of benefits that can be obtained – however I find that firms practicing your type of law and that have your type of clients that alternative is talked about more than actually implemented. You may find that your clients like the thought of the certainty of fixed fees but have concerns about the quality of representation under such arrangements. Recently, a litigation defense law firm asked me to interview their clients concerning their satisfaction with the law firm. When asking one general counsel about his thoughts regarding alternative billing he told me:

"My concern with fixed fee billing is that there might not be the financial incentive for the law firm to dedicate all the resources and best efforts to obtain the best results for our company. I prefer hourly billing with case management plans and budgets. I want our law firms to be financially successful as long as they achieve results for our company and not be penalized or constrained by fixed fee arrangements."

You may find that your clients are open to discussing alternative billing arrangements but may be hesitant when it comes to implementation. They are comfortable with hourly billing.

With this said I think you should explore the dialog with maybe one pilot client and see where the discussion leads. Insure that you do the proper analysis of that client's billing history, overall risks, and develop a fixed fee strategy that not only allows you to attain your desired billing rate but provides for a risk premium as well. Also build in ability to take exceptions for matters that fall outside the scope of the fixed fee arrangement.

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

 

 

Mar 08, 2016

Law Firm Administrators – New Administrator – Accounting vs. Human Resource Background

Question:

Our firm is a 18 attorney firm based in San Diego. We are considering hiring our first legal administrator and have interviewed several candidates and have narrowed our search down to two candidates. One candidate has a strong financial background and has worked as a director of administration in several very large firms – 200 plus attorneys. The other candidate has a strong HR background, a weaker financial background, and has worked as a firm administrator in two different law firms – a 30 attorney firm and a 20 attorney firm. We like both candidates. Which candidate would you lean toward?

Response:

I would lean toward the administrator that worked for the smaller law firms. Having worked in smaller firms this candidate would be a more hands on administrator which is what a firm your size needs. In a firm your size the critical need is people management and leadership. As long as the candidate has a working knowledge of accounting the candidate should do fine with the oversight of your CPA firm. If you have to you can supplement any accounting deficiencies with outside resources – you can't outsource people management.  

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

Mar 01, 2016

Law Firm Marketing – Estate Planning Firm & Importance of Lawyer Referrals

Question:

I am the owner of an estate planning firm in Oklahoma City. I have four associates that work for me in addition to two billable paralegals and three staff support members. I am looking for ways to improve our business development and marketing. The majority of our business comes from past client referrals and referrals from employees and friends. We spend a considerable amount on advertising which includes our website, print ads, collateral materials, newsletters, etc. We would like to do more to increase client business. I would appreciate your thoughts?

Response:

I find it interesting that you did not mention referrals from other lawyers. I have many estate planning/elder law clients that receive a major portion of their clients from referrals from other lawyers. This should be a key component of your marketing plan. Your business development and marketing efforts should address this potential referral source. You should be investing targeted time:

Review your website and see if it speaks to both your individual clients (mom and pop clients) as well as professional referral sources such as other lawyers.
 

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

 

 

 

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