In this, the first of a series of two articles covering legal business management fundamentals we shall take a look at how to manage law firm costs and performance.
As the summer holiday period approaches and business slows a little, it is an ideal time to take a hard look at the performance of your legal business to strengthen it for the future. Let’s begin with costs.
Each year it is essential that you review all significant costs to your business. This involves analysing any growth in specific costs compared to earlier years and any new trends that have developed. In addition to this, take a look at the root causes of the increases. Are they avoidable? Can you do anything to mitigate their impact? Are they necessary?
Take a long, hard look at the activities that generate costs. This means assessing their contribution to income generation. The results of this assessment should leave you with three types of cost:
Obviously, essential costs such as office space, heating and lighting are difficult to avoid. However, it is worthwhile examining them to see if there is a more cost-effective way of managing them.
Required but non-essential costs demand a slightly different type of analysis. A large number of marketing costs fall into this category. Herein lies a great difficulty. It is easy to determine return on items such as direct mail or email campaigns. Other branding related elements such as advertising or PR are more difficult to quantify. Just be aware that if you cut branding and PR you may adversely affect response rates to more direct marketing methods. Direct and indirect marketing usually support each other.
You can eliminate many low impact / low return costs without too much fear. Many different costs fall into this category. Temporary staff taken on during a surge in demand or additional practice management software licences bought at these peak periods are good examples.
However, the golden rule for this type of cost is to ask two simple questions:
The first is the more important. For example, making savings by keeping staff salaries as low as possible may seem obvious. However, if this leads to higher staff turnover, you could be faced with a much larger bill for recruiting and training new people.
For a full list of business costs, take a look at this article from Chron.
This one is always something of a pot-boiler. All businesses, let alone law firms, should review staff performance. Start with the partners as they are the costliest and their underperformance makes the biggest impact on the bottom line.
An unambiguous definition of acceptable performance levels is the starting point. This should include:
Remember, if you can’t measure it, you can’t improve it.
Start by asking a different question: “What are the criteria for partnership?” Oh dear, I’ve opened a real can of worms with that one! My answer is simple. Partners should be able to generate fee income, find new clients and create new revenue streams. Those are the minimum requirements. Underperformance is failure to do one or more.
Partners with fee incomes below average due to unfavourable economic conditions may be underperforming. They are not if they are putting effort into marketing, client relationship management and mentoring colleagues. Underperformers are those whose fee incomes are down and are doing nothing to correct it.
There is also another type of latent underperformance. On the surface, the partner may be generating reasonable fee income. If he or she does this by handling lower value work that would normally go to more junior solicitors, then profitability takes a hit. This is just as bad as not trying to develop new clients.
During economic downturns, all fee earning members of the team should come under scrutiny. However, let’s be blunt here. Greater cost savings will be made by removing an underperforming partner than an underperforming associate. It’s a tough bullet to bite.
Managing performance is a key indicator of how remuneration should be handed out. In firms that reward based upon merit alone, it is the obvious mechanism. However, for firms using lockstep or hybrid lockstep / merit compensation systems, it can get tricky.
In an economic downturn, tensions can rise among partners over differing levels of performance. High performers might tolerate some degree of underperformance in a merit-based system or even a hybrid lockstep / merit one. They are much less likely to tolerate it in a purely lockstep system.
In the second of this series of two articles on law firm management, I shall look at business strategy and marketing.
© LawWare Limited 1995-2021
Our clients range from small start-up legal practices to multi-partner, multi-site firms.
Another great customer service experience from LawWare. My laptop had to be stripped back to factory settings as part of a repair - taking hours! In contrast, restoring LawWare took one phone call to the support team and I was up and running in 6 minutes. If only everything was so easy!
As the first commercial user of LawWare back in 1998, we have had no hesitation in remaining with the product through its development. We thoroughly recommend it to any firm looking for a practice management system.
The helpdesk is exceptionally good. Whatever the query there is always a human being there to help. No leaving messages or being advised to go to a website. The best computer service for solicitors I have ever used!
The linking of documents and casefiles saves so much time! I have experience of several accounts packages and I like that LawWare is simple to use and easy to learn. Support is quick and effective and staff are helpful and courteous.
I have worked with a number of Case Management providers over the years but have not come across anything with the attention to detail and thoroughness of LawWare. My colleagues and I have not been disappointed.
I can’t imagine trying to be a law firm in the 21st Century without 21st Century IT systems. Having a ‘single system’ that underpins all the work, whether we are in the office or out, is an integral part of what we are building.
The level of support is the main benefit using this system. The system itself once you have had training is simple and easy to use. We have a great relationship with LawWare and the ongoing support is second to none.
Significant preparation was required to configure and import the data from our old firm. We had to get all clients onto the new system and then learn how to use it. We just find it very easy to use, much easier than our old system.
Being a busy litigator with a growing firm it is incredibly useful to be able to view my files from any location with some form of internet connection. I am a fan, and want to keep working with LawWare to make a good product great.
The switch to the new LawCloud system, which is still on-going, has gone very well. We found the LawWare team without exception to be very helpful and knowledgeable. All queries are followed up and dealt with promptly.