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Learn from legal expert, Harrison Barnes
Don’t just take it from us
It is clear that many law firms are performing very well financially. Throughout the year, firms of all sizes have enjoyed solid productivity and a healthy pipeline of fee inventory. High single-digit to low double-digit increases in revenue and profits per equity partner will be common for many of these firms.
The bad news is that, as firms have grown more profitable and pushed harder on the drivers of their firms' economics, it is becoming difficult to identify ways to ensure that the double-digit increases in profitability will continue. After all, the economic model of law firms has only a handful of levers (rates, realization, leverage, utilization, expenses). Once firms pull as hard as possible on each lever, there is not much more they can do. For law firm leaders, managing the expectations of their partners will become a more difficult challenge, particularly since a good portion of those partners have come to expect double-digit increases in profitability each year.
In our work with law firms, we are often asked to assess a firm's financials, identify issues and, more importantly, suggest ways to enhance profitability. As the industry has become more competitive, enhancing profitability has taken on increased importance as firms try to figure out how to maximize their profits in order to retain key personnel and attract lawyers to the firm. There is no reason to think this will change anytime soon.
Now is a good time to reconsider the drivers of profitability and the steps successful firms are taking to ensure that they do not hit a profitability plateau. In our experience, firms that ensure that all partners understand the drivers of their firm's results and incorporate that knowledge into how they run their practices achieve the highest levels of success.
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