Summary: How can law firm managing partners improve the profitability of their firms?
CorcoranLawBizBlog.com has some pointers for law firm managing partners. After all, these businesses have been dealing with declining demand and an oversupply of providers, so they have to be innovative to keep up with the demands of the changing market. How can law firm leadership stay ahead when faced with market forces, changing client needs, constant modernization, and pressure from competitors?
First, managing partners must change the governance model. The partnership model, in which all partners have an equal say in the operations of a business, may not be best. Of course, a single figure should not make all of the decisions, either. A core leadership team at both the firm and practice group level should have the authority to make decisions. The lawyers should practice, and the leaders should lead.
Productizing law firm offerings is also essential. Figure out which products, or service offerings, are most profitable and focus on those.
Strategic pricing is also important in the law firm model. Clients do not care so much about the mechanics of pricing so long as they feel that the value they receive is on par with the money they have paid. Focus on what it costs the firm to produce and deliver services, and use that information to establish prices. If this seems too difficult, you can always hire a finance team to help you.
Reduce waste in the firm. Law firms waste tons of overhead. Be mindful of the events the firm sponsors, the expensive décor in the office, and attorneys whose practices may be costing the firm significant sums of cash. Require all attorneys to follow best firm practices, and carefully examine each process within the firm to determine how waste can be reduced. If you are unsure as to how to begin, consider hiring a business process improvement firm, or perhaps a business process outsourcing firm to have a third party manage your accounts payable.
Similarly, cut back on the costs of products sold. To fight competition, which is rampant in the legal world, take a look at the costs of your services and figure out where the firm can cut back. Don’t bill for steps in a case that are unnecessary or that the client feels are unnecessary. Discuss budgets with your clients and implement project plans that present more profitable approaches to handling cases and claims.
Knowledge management is always a wise investment. It should be considered along with the learning curve, which is the principle that what we have done multiple times can be done more efficiently. For example, if a pricing analysis reveals that a service should cost $2,000, find a way to both produce and deliver that service for less than $2,000. This is a stronger approach than simply investing in expensive technology tools, which many attorneys never use.
Businesses must have a strong sense of their working capital, cash flow, and resource needs. For whatever reason, many firms determine fiscal health by using measures such as profits per partner, which isn’t always best. Instead, create a sales pipeline and target the best prospects. Predict the resources needed for future engagements.
You must regularly measure client satisfaction. You could hire a consultant, conduct interviews, or send out surveys. Many firms mistakenly believe that simply doing good legal work is enough, but this is not the case. Firms need to understand why clients hire them, as well as why they do not hire them. Firms can always benefit from improving their practices.
Provide compensation for retention and profit. Instead of simply rewarding partners for billing a certain number of hours, bringing in a certain number of clients, and so on, focus on rewarding attorneys who benefit the firm at different points throughout a case or throughout a fiscal year. After all, simply billing hours and bringing in clients does not always mean the clients are satisfied.
What happens if you get rid of the billable hour? Jackson Lewis PC has actually already implemented such a practice. Brian Christensen, the managing shareholder of the firm’s Overland Park office, said, “It’s a major culture shift. The billable hour is sort of the holy grail—or maybe nothing quite that pleasant—for associates and others. Doing away with it really changes the entire way we look at client service and delivery of services.” According to the Kansas City Business Journal, employees will be evaluated on work quality, responsiveness, work ethic, team orientation, and client service, among other factors. Clients are thrilled with the change as well, and, according to Christensen, the firm has even generated business because of the new practice.
Finally, implement leadership and management training. Many firms have enjoyed success without fully understanding why. How can you continue your success without knowing what led you to it? If this task seems daunting, you can hire services to evaluate your business practices so you understand how to strengthen your firm.
- See Five Ways to Boost Your Firm’s Business for more information.
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