Operating a law firm can be challenging to say the least. Between having to keep clients satisfied while also managing the needs and concerns of in-house attorneys and clerical staff, the goal of optimizing profitability can often become lost amongst a sea of tasks. Unfortunately, the low demand growth in the industry means that there isn’t an ever-growing pool of clients to service. Furthermore, new law firms are popping up everywhere, so the market is only becoming more competitive. Here are five steps law firms can take to increase profitability in any climate:
1. Hire a Law Firm Marketing Consultant
Of course, the most obvious way to increase profits is to simply solicit more business. If your current marketing strategy has left much to be desired, you might want to consider utilizing the services of a law firm marketing consultant like Lawbiz. These specialized consultation services are designed to help law firms become more marketable, which is always a reliable precursor to greater profits.
2. Focus on Billing Realization
The realization rate – the percentage of worked hours that are successfully billed for by a law firm – is one of the most important metrics to work on when increasing profitability is the goal. Thus, optimizing billing practices and developing a system for complete accountability should be some of the first steps taken to maximize the income potential of a firm.
3. Optimize Your Mix of Timekeepers
Your timekeepers – the legal professionals who provide services and bill for work hours under the umbrella of your firm – should consist of roughly 40% associates. Studies have shown that the most successful law firms have a timekeeper mix that contains more than 35% associates. This is because the average firm enjoys a 40% profit margin on work delivered by associates, whereas profits are generally much lower for non-equity partners and paralegals.
4. Try to Retain Good Lawyers
Hiring a new attorney is a significant investment for a law firm, so it makes sense that you should not only be selective about the lawyers you bring on board, you should also work to keep them around for a while. Market research indicates that firms with higher associate retention rates are the most profitable, although that could be more due to correlation than causation.
5. Invest in Advertising and Image
Finally, as the old saying goes: “you have to spend money to make money.” If you really want your firm to have an abundance of business, you’ll need to start allocating a generous advertising budget towards the goal of gaining new clients. However, it’s important to attract new work at a sustainable pace, as you don’t want an overwhelming workload to compromise the quality of your services and therefore cause potential damage to the firm’s reputation.
Is Increasing Rates a Good Idea?
Unless you’ve been charging a discounted rate that is well below the industry average for the type of services you provide, it’s usually not a great idea to suddenly raise your rates. In fact, if winning over more clients is the goal, it may be better to slightly reduce your rates as a promotional tactic. Ultimately, a slight hourly raise isn’t enough to justify the potential loss of clients to the competition.