United States: How To Improve A Law Firm's Profitability In Today's Competitive Environment

Today more lawyers than ever before are in private practice. Almost 90% of today's firms employ 10 or less attorneys. In this competitive environment, the challenge for every law firm is to maximize their profitability and to establish a plan for future growth. Below, we will focus on how successful law firms can improve their profitability.

Four Ways to Increase a Law Firm's Profitability

In good times or bad, the number one priority for the management of a law firm is profitability. Although economic conditions are beyond your control, plenty of factors that drive or impede profitability are not. To boost your bottom line, here are some points to consider in order to take control of the following:

  1. Improve Management of Billing, Receivables and Payables
    Delays in issuing and collecting on invoices often lead to costly and unnecessary write-offs and write-downs. To streamline the process, consider pre-billing your clients for major expenses such as expert witnesses, depositions and travel. In addition, you should bill clients as soon as a matter is completed, regardless of the result, and in the interim, as appropriate service milestones are reached (for example, after a successful pretrial motion).When clients submit their payments, process them immediately, making daily deposits, rather than letting payments stack up. If your clients delay in paying their bills, follow strict schedules for following up with them. You might cite quarterly and year-end bank reporting as a reason to reach out on delinquent payments. Consider offering one-time discounts as incentives for clients to satisfy aged receivables, and encourage payment by credit card. It is incumbent for firm managers to review unbilled time and each attorney's outstanding receivables.As for payables, pay your bills as close to the due dates as possible so you benefit from any early payment discounts without transferring funds unnecessarily early. If available without additional fees, take advantage of deferred payment options; regularly negotiate with vendors for discounts and lower prices.The Sidebar below offers some tips on how and where to cut your costs.
  2. Cross-Selling Services
    It is a marketing truism that it is easier and more cost-effective to generate new work from an existing client than to attract a new client. That is where cross-selling comes in.Attorneys need to set aside time to spend with their clients to learn more about them, and to recognize if they may require additional services, now or in the future. Lawyers should be ready to introduce their client to other lawyers in the firm, or to other firms outside of their firm's area of expertise. Note that members of your firm may need a primer on your firm's specialties and services to help them identify cross-selling opportunities. Some might be resistant to sharing "their" clients, so you should explain the benefits of cross-selling for the firm and, ultimately, their own bottom lines. You also might want to tie cross-selling to compensation.
  3. Increase Specialization
    Law firms that specialize in specific practice areas often see greater profits than those that take a more generalist approach. Attorneys and paralegals who specialize in an area generally work more efficiently and effectively, and produce higher quality work at a greater pace and for higher fees. Even small firms can benefit from dividing up legal work by practice area.
  4. Reduce the Number of Your Clients
    This tip no doubt seems counterintuitive. More clients means more money, right? Not necessarily. Every firm has had its share of troublesome clients who take up time and resources without returning profits that justify such expenditures. It should be a firm policy to not take on unprofitable matters in the hopes that someday they will bring in a project that makes it all worthwhile.It is generally better to focus on having fewer but more profitable clients. When you work with a handful of large clients with continuing matters and numerous needs, you can develop a deeper understanding of your clients that leads to more lucrative cross-selling opportunities, as well as a stronger sense of teamwork both with the clients and within your firm. You will also likely reduce costs related to client acquisition.Of course, there are exceptions to this rule, but you need to be selective in the clients you choose to represent.

An Evolving Process

Improving profitability is not just a matter of instituting one or two measures and then sitting back. It is a process that requires ongoing vigilance regarding financial and economic conditions so you can spot opportunities and take advantage of them.

Sidebar: Tips for Cutting Costs

One of the easiest ways to improve profitability is to reduce your costs. This is an area where you can think creatively. For example, you might consider adopting alternative staffing arrangements. Flex-time, part-time or temporary attorney arrangements can all result in lower staffing costs. Such options can give firms access to top-notch attorneys who are not necessarily interested in the traditional partnership track, without many of the costs associated with full-time lawyers. Outsourcing might be advisable for non-attorney services such as those provided by a quality CPA firm such as identifying internal control weaknesses and tax-planning

Another idea is to take advantage of new technologies such as those found in the latest software improvements and cloud services. You will be able to find a wealth of options for increasing productivity, improving practice management and saving time on standardized tasks and forms.

And, don't forget to look at your compensation models. Law firms are increasingly moving away from fixed salary compensation to incorporate a variable pay component based on outcomes and achievements. Changes to benefits also can cut costs. For example, employers of all kinds are increasing health insurance deductibles and employee portions of premiums.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.