Profitability in Law Firms

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