Law Practice Management Asked and Answered Blog

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December 2013

Dec 17, 2013

Law Firm Management – Managing in a Time of Shrinking Demand and Excess Capacity

Question:

Our Chicago law firm of 17 attorneys – 12 partners – 5 associates – is entering its second decade. While we were extremely successful during our early years, the last few years have been a challenge. Since 2008 we have been holding our own and doing okay. We have not laid off any attorneys but the partners are making less money than they made three or four years ago. Billable hours and production seems to be down? Do we have a work ethic or motivation problem? What can we do to get the attorneys producing more billable hours? I would appreciate your thoughts and any suggestions that you may have.

Response:

This is an issue that many firms are experiencing. Here is what I am seeing in firm after firm:

  1. Lower billable hours – in some firms hours are 100 to 200 hours less per attorney than they were a few years ago.
  2. Lower or stagnant collected fee revenues.
  3. Increased expenses
  4. Lower or stagnant profits and profit margins resulting in depressed partner earnings.
  5. Lower associate turnover (due to economy and employment situation for lawyers – many associates are staying put – getting raises – resulting in higher production cost structure)
  6. Declining realization rates. (Firms that had realization rates in the 90% range have seen their realization rates decline into the mid 80% range.)

Several of our clients recently found that they were barking up the wrong tree. They assumed that the lower billable hours and productivity was a result of associates and partners not working hard enough and were searching for compensation approaches to motivate the attorneys to work harder. Further analysis however revealed that the real problem was reduced client demand and excess lawyer capacity. As a result approaches were taken to:

  1. Find ways to use the excess capacity rather than lay off lawyers completely. (This was considered a last resort)
  2. Rather than working less – non-billable hours were specifically targeted in individual attorney personal business plans with specific goals in marketing and other firm related activities to develop firm infrastructure, systems, and marketing intended to increase demand for the firm's services. 
  3. Fiefdoms were broken down and attorneys and staff were cross-trained in other practice areas so that more key personnel could achieve full utilization of 1650-1750 billable hours.
  4. Work hours were reduced for newer attorneys and staff that could not achieve full utilization.
  5. The firm expanded into additional geography areas with cost effective remote intake offices and new service offerings. 

Examine your financials and talk with you people so that you can discover the real problem – work ethic, motivation, compensation, or client demand and lawyer capacity. Once you discover the real cause of the problem you will be able to think you way to the solution.

Click here for our blog on financial management

Click here for our blog on profit improvement

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

 

Dec 10, 2013

Law Firm Marketing – Getting Partners and Associates To Market and Develop Business

Question:

Our firm is a 16 attorney insurance defense firm in Nashville, Tennessee. We have 3 equity partners, 4 non-equity partners and 9 associates. The three equity partners (who bring in all the business) are nearing retirement and the remainder of the attorneys have completely failed to develop rainmaking skills and develop business. We hired lawyers to "bill hours" and failed to consider the long range implications of hiring lawyers without business-getting skills. Do you have any suggestions?

Response:

Start by creating the culture and environment.  Marketing and client service needs to be incorporated into the culture of the firm. All attorneys should have a role in marketing. All partners must walk the talk and consistently build and reinforce the marketing goals of the firm. Marketing goals and action plans should be formulated for all attorneys and they should be held accountable.

A few ideas:

  1. Begin setting marketing goals for each individual attorney in the firm and incorporate a review of goal accomplishment in performance reviews.
  2. Incorporate into the compensation system – measure more than billable hours.
  3. Provide marketing training.
  4. Provide adequate tools to support marketing efforts – budget, database, goal attainment dashboard reports, etc.
  5. Tie equity partnership to the ability to develop a substantial book of business.

Changing the culture of the firm will take time – however over time a marketing mindset will emerge.

Click here for our blog on marketing 

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

Dec 03, 2013

Starting a Law Firm – Going Out On My Own – The Most Important First Step

Question:

I am a non-equity partner in a small law firm in Washington D.C. I have been with the firm for 15 years and there is no opportunity to become an equity partner. I am thinking about going out on my own. If there were one first step that I should take what would it be?

Response:

Create a business plan – even if only a few pages – for the firm. Your plan will serve as a roadmap for your practice. Your mission should address what services you are selling, where you are selling them, and to whom. Your plan should address your competitive strategy – how you will be different than your competitors. It should also identify your core values. A vision for 5 years out into the future as to where you would like to see the firm and specific goals and objectives should be formulated.

Your plan will give you a good indication as to whether you should start a practice or not.

Click here for other ideas and tips 

Click here for our blog on law firm strategy

Click her for links to our articles on other topics

John W. Olmstead, MBA, Ph.D, CMC

 

 

 

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