Profitability in Law Firms (eBook)

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