Using Profitability Data to Transform Your Law Firm

Because today's clients have tighter budgets and greater expectations, law firms must find new and better ways to increase productivity and profitability. Billing more hours and raising rates are not always the right solutions. Progressive law firms are looking more closely at what actually makes their work profitable.

These firms are working smarter, not only harder.
With routine profitability analysis, law firms are able to generate data showing how profitable a client, attorney or practice area really is. And calculating profitability is something that most law firms can already do with the data found in their current time, billing and accounting systems.

Law firms can utilize profitability data to:

• Improve staffing and overhead efficiency

• Make better hiring and salary decisions

• Make smarter business decisions, and

• Increase net income per partner.  

 
Actionable Insight

Having the capability to generate quality profitability data and having the ability to use the data to support meaningful change in an organization are two entirely different processes.  Actually taking the data and applying it to initiatives requires a skillful hand.

Because of the various strategic and political factors that exist in law firms, profitability results must be communicated with careful consideration. 

Why? 

Consider the possibility that a client profitability report shows that the firm’s largest client is actually the least profitable. In addition to the obvious financial implications, this client may be attached to a very influential partner who will not appreciate this result very much. If care is not taken, this information may never see the light of day.

The value of using profitability analysis on a routine basis is apparent. Applying profitability data helps law firms to attain:   

- better cost allocation systems,

- higher quality financial reporting,

- increased cost control

- more effective  marketing, pricing and organizational development

Most importantly, profitability reporting promotes accountability. Partners who understand the drivers of profitability in their practices become an incredibly powerful force for change. They can more accurately improve the client experience and maximize profitability, giving them a great competitive advantage. 

As legal practice management consultants for nearly 20 years, PerformLaw has spent thousands of hours helping clients design and manage more profitable law firms.