As we start the new financial year with a clean slate, it’s time for everyone at a law firm to be asking the question “how profitable are we?” and “what is my role in ensuring that we are increasingly profitable?”. No longer can profitability be the sole responsibility of just one team – firms should focus on distributing responsibility for financial growth and look at how different departments can work together to make more profitable decisions. This is because the most profitable firms are not just the ones that make investments, but are those that can justify them and quantify the return on those investments.
So, how can law firms do this? By making it a part of their culture at large, giving both a sense of commitment and responsibility to not just other teams but the individuals in those departments too.
Let’s first look at the marketing team’s contribution – if they can focus on winning more profitable work for less effort, this is an immediate, firm-wide win. By seeking ways to make pitching leaner and easier for the teams, for instance through the use of pitching tools, marketing teams not only free up their time but also give time back to lawyers too, which can then be spent more profitably on billable client work.
HR’s focus on retaining, educating and developing staff is a huge factor in increasing profitability – Retensa estimated staff turnover costs the top 400 firms in the US $9.1bn. annually In addition, if HR adopts a mentality of attracting profitable lateral hires, there will undoubtedly be a quicker return on investment.
The finance team’s contribution to law firm profitability is clear. By reporting on the numbers and analysing and coordinating profit growth activity, the team has a strong correlation to financial growth – so, by investing in tools to strengthen these tasks, firms can expect to see profits rise. But finance needs to evolve its role to influence profitability more widely across the firm.
If fee earners don’t put all their time accurately against a fixed fee matter, you won’t be able to get an accurate image of what it takes to deliver the work. Without that knowledge, marketing can’t decide on whether doing more of that work is worth pursuing. In one firm, I found that 40% of its clients were unprofitable! This needs to change.
Once law firms start investing in their teams in this way, profitability becomes not only collaborative because everyone contributes, but it is achieved collaboratively through the use of cross-departmental data and intelligence.
For example, if fee earners don’t put all their time accurately against a fixed fee matter, you won’t be able to get an accurate image of what it takes to deliver the work. Without that knowledge, marketing can’t decide on whether doing more of that work is worth pursuing. In one firm, I found that 40% of its clients were unprofitable! This needs to change.
We expect the new financial year will see innovative ways for teams to collaborate and share data to increase efficiency and profitability. The good news is we’re already seeing some firms doing some great things around this approach.
One of our US clients, for example, built a series of cross-departmental financial BI dashboards that gives relevant financial information to specific departments in a way that’s valuable to them. This is built on a single source of data, so people don’t come to different conclusions – they simply interpret it in terms of its implications from them. By giving teams a tool to see their contribution to the bigger picture, they created a sense of responsibility for each team.
If you’re feeling inspired, remember that you need your data to tie up together and your firm’s data model needs to be in sync, so that you can proactively monitor data in real-time. And you should almost certainly make sure to build in skills and training too. By doing this you can start to implement the department-level changes to encourage a significant return on investment.
This article from Christopher Young first appeared in Briefing Magazine’s April 2022 issue.