One of the keys to understanding law firm profitability is understanding your fee structure on a very nuts and bolts level. Like everything else in the legal world, fee structures are being challenged from a variety of forces and are facing tremendous downward pressure. At what point does your fee structure become a source of profit, and at what point are you losing money?
Does your practice rely on the traditional billing model? A high-net worth client who needs an estate plan may not blink an eye at paying a senior partner a high hourly rate, but those are more the exceptions than the rule. Your average client with an average size estate knows that their documents are not being custom designed and will push back at what they perceive as higher than necessary fees.
Do you offer a fixed price for a group of bundled documents? If you have not crunched the numbers, you could be losing money here. How long does it take for these documents to be prepared, what is your cost to prepare these documents (salary, overhead), and what is the net profit? At what point does your profit get nibbled away when additional work needs to be done that takes an attorney away from other tasks?
How many clients does your estate planning law firm need to be profitable? This is one of the most basic questions, but many firms don’t know this number. You’ll want to know this number to set goals for yourself and your team.
Are you doing the right amount of marketing? A website is not enough. More frequent blog posts and social media posts will boost your firm’s online visibility. Ramping up your law firm’s profile though targeted email campaigns, speaking and writing articles in local media and networking among referral groups are all necessary to maintain a steady flow of new clients and profits.
How well are you managing billing, receivables and payables? Often these tasks get pushed to the side because of what seem like more pressing deadlines. But if you are not managing your income and expenses, money is flying out the door. Figure out a system, hire a part-time bookkeeper, or outsource these tasks so they are not given short shrift.
Do you measure billable metrics? Strike a balance between treating your professionals like production line workers and letting things slide out of profitability. You want the work to get done, the clients to adore every member of your team, and the end results to be the best they can be, but not at the expense of giving away the store. If your associates are covering their salaries, overhead and netting you profit, that’s the ideal profitability equation. If you have partners or associates who are costing you money, it may be time for a conversation.