In our last post, we focused on assessing a firm’s competitive position by reviewing planned work-life timelines, relative workload distributions, and capacity. Please see last week’s post to review that information.
Lawyers 55 or older make up over 1/3 of all practicing attorneys. These data have been found across the 15+ legal markets that PerformLaw has collected demographic data for over the past two years. The same demographics hold true on a national basis. (Source: "The Lawyer Statistical Report", American Bar Foundation)
Many of our clients are faced with the challenge of sustaining profitability while meeting client demands for greater value. To help these firms to maximize profitability, we conduct several client profitablity analyses each year.
Apart from the non-financial factors (reputation, cultural fit, conflicts, strategic benefits, etc.), law firms should carefully analyze the financial implications of a possible lateral transaction. When considering a potential lateral hire, firms should efficiently address the following questions:
****** READ PART ONE OF THIS SERIES: Safeguards for Admitting Laterals (Part 1) *****
Workload Distribution and Revenue per Hour
In a lateral transaction, the impact on average revenue per hour has limited meaning. In other words, it is highly unlikely that the current partners are going to raise or lower their billing rates as a result of a new lateral admission. An opportunity cost likely exists if a lateral transaction employs all of the firm's current excess capacity or available capital. The impact on the average rate per hour only becomes relevant when it directly or indirectly impacts current revenue streams.
Market-aware law firms realize that clients can globally analyze billing data and draw statistical conclusions about the appropriateness of lawyer billing. For example, it would not be hard to determine the number of hours charged to a client's matters and perform competitive comparisons and reasonableness tests. Imagine the potential consequences of a poor showing in the testing process.