Profitability in Law Firms () von Toby Brown

Profit. What a simple term. To determine it, all one needs to do is take revenue and subtract costs and there you go: profit. From there it’s easy to determine a percentage and margin. So what’s so hard about law firm profitability?

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ixAbout the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvChapter 1: The law firm profit primer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1By Toby Brown, CEO, DV8 Legal StrategiesLet’s get started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Moving right along . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Putting it all together . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Core challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Chapter 2: KPIs for aligning strategy to enhanced client value and partner profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11By Steven Campbell, consultant, Acumen KPIAvoiding unintended consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Don’t confuse margin (net income) and profits per equity partner (PPEP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Dashboards should focus on areas of greatest impact . . . . . . . . . . 14Vision drives strategy – strategy drives effective KPIs . . . . . . . . . . . 17Example law firm mission, values, and vision . . . . . . . . . . . . . . . . . . . 17Non-financial KPIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18New tools to help measure and prioritize strategic action . . . . . . . 20Effective KPIs should inspire action . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Chapter 3: Applying battlefield lessons during peace time – learnings from the COVID-19 pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . 25By Tim Corcoran, BringinTimThe standard playbook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26The onset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Lessons learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32The long view . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Chapter 4: Linking partner and associate compensation to the achievement of a firm’s strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47By J. Mark Santiago, managing partner, SB2 ConsultantsVision and strategy development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47How did we get here? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Compensating the rain dancers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Contribution roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Individual partner goal setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Assessment and evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Communicating pay decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55The partnership compensation system . . . . . . . . . . . . . . . . . . . . . . . . 55Closing the loop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Chapter 5: Pricing approaches and firm profitability . . . . . . . . . . . . . . . . . 59By Shaun Jardine, founder, Big Yellow PenguinBusiness development, clients, and positioning strategy . . . . . . . . 63Understanding clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Create a pricing strategy and vision . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Lead the change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76Chapter 6: The roadmap to £1,000,000 extra profit in three years . . . . . 79By John McCarthy, profit coach, Summit BusinessIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79The P.R.O.F.I.T. system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79The nine-step roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80Implementing the P.R.O.F.I.T. system . . . . . . . . . . . . . . . . . . . . . . . . . . 83The business blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84Not following the business blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . 85Following the business blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86How poor cash flow almost sank a law firm . . . . . . . . . . . . . . . . . . . . 89The five cash flow levers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90The five cash flow levers being implemented . . . . . . . . . . . . . . . . . . . 93Profitability and efficiency first, marketing second . . . . . . . . . . . . . . 94Profit exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Implementing the profit maximizer . . . . . . . . . . . . . . . . . . . . . . . . . . . 99Don’t do what many other law firms do . . . . . . . . . . . . . . . . . . . . . . . 99Focusing on effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100Putting this into practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100Closing thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Chapter 7: How a sound matter pricing strategy canelevate law firm profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103By Jack Kingston, account manager, BigHandBringing in the best matters for your firm . . . . . . . . . . . . . . . . . . . . . . 104Differing approaches for payment of legal services . . . . . . . . . . . . . 105Chapter 8: Questioning the value of law firm rack rates . . . . . . . . . . . . . . 111By Richard Brzakala, senior director, Global External Legal ServicesBackground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111Why RRB discounts are so attractive to CLDs . . . . . . . . . . . . . . . . . . . 112The credibility of cost savings based on RRB data . . . . . . . . . . . . . . 113The utilization of supplementary fees . . . . . . . . . . . . . . . . . . . . . . . . . . 114Zero negotiation strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114What are CLDs looking for? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Law firm reliance on pricing specialists and business intelligence tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117What CLDs want to see from firms utilizing a RRB strategy . . . . . . 118The importance and value of transparency . . . . . . . . . . . . . . . . . . . . 120Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123Chapter 9: The next frontier in pricing strategy – capturing value from legal technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125By Stuart Dodds, principal, Positive PricingMaking sense of the legal technology landscape . . . . . . . . . . . . . . . 126The partner’s perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128The client’s perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129The pricing professional’s perspective . . . . . . . . . . . . . . . . . . . . . . . . . 130Pricing approaches adopted to date . . . . . . . . . . . . . . . . . . . . . . . . . . . 134Key considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135What we can learn from the early adopters . . . . . . . . . . . . . . . . . . . . 136Chapter 10: Harvey Specter – the ghost of a law firm reality yet to come . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139By Phil Nixon, senior sales executive, Elite TechnologyWhat is available and how will this impact legal services? . . . . . . . 141Will you take the blue pill, or the red pill? . . . . . . . . . . . . . . . . . . . . . . . 143Building the foundations for technological success . . . . . . . . . . . . . 143Can technology actually help us become more profitable? . . . . . . 144Improving profitability and WIP to cash with technology available today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147Improving profitability and WIP to cash with one eye on the future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148A technology roadmap – getting your house in order . . . . . . . . . . . 150Chapter 11: AI and what it means for law firm profitability . . . . . . . . . . . 155By Wayne Hassay, managing partner, Maguire Schneider HassayThe ethics objection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156The fear of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157The risks and emerging power of AI . . . . . . . . . . . . . . . . . . . . . . . . . . . 158Making a smarter, more profitable, law firm . . . . . . . . . . . . . . . . . . . . 161Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163Chapter 12: Sustaining success along the profitability journey . . . . . . . . 165By Madhav Srinivasan, CFO, Proskauer, and Mitch Spradlin, pricing director, Hunton Andrews KurthOverview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165Positioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166Goal setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167Matter management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168Matter lifecycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169Resourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172Chapter 13: The seven profit zones formula for higher profits – without working more hours . . . . . . . . . . . . . . . . . . . . . . . . 175By Michelle Peters, former practicing solicitor and founder, The Business InstructorIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175A different approach – the seven profit zones formula for profitable growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177Getting practical – how to increase each profit zone . . . . . . . . . . . . 182Beyond ten percent increases – doubling your profits without doubling your clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191How long does it take to double your profits? . . . . . . . . . . . . . . . . . . 193The implementation paradox – information vs action . . . . . . . . . . 194Getting started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196Chapter 14: The human cost of boosting profitability . . . . . . . . . . . . . . . . 197By Richard Martin, principal consultant, Byrne Dean and CEO of the Mindful Business CharterMental health in the legal profession . . . . . . . . . . . . . . . . . . . . . . . . . . 197A couple of caveats before we start . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199Why lawyers become lawyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199Where’s the balance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202How profit is increased and the impact of that . . . . . . . . . . . . . . . . . 203Doing more work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204Reducing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205Charging more or differently for work done and improved financial management . . . . . . . . . . . . . . . . . . . . . . . . . 206A different approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207About Globe Law and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211