5 Ways to Increase Law Firm Profitability
5 Ways to Increase Law Firm Profitability
For a legal practice to achieve success, law firm profitability is an essential area of discussion. The more profitable a law firm is, the more capable the business is at serving clients, maintaining adequate compensation, and staying competitive. Unfortunately, even high-revenue law firms sometimes struggle to see their maximum profit potential. Find out the difference between revenue and profitability, along with simple tips to enhance profitability.
Law Firm Revenue vs. Law Firm Profitability
Revenue is not the same as law firm profitability. Revenue is how much money a firm brings in, but profitability is how much net profit is made once all expenses are settled. Law firm revenue and law firm profitability are closely related, but a firm with a high revenue may not be maximizing profit potential just the same. When a law firm’s revenue rises, profitability should follow. If not, this is an indication that there is a lack of focus on things like billable hours, billing, or managing cash flow.
5 Simple Tips to Boost Law Firm Profitability
In order for a law firm to achieve as much profit as possible, a critical look at the return on investment (ROI) for every effort must be examined. Here is a quick look at simple ways to boost law firm profitability.
1. Focus Work Efforts on Profit
Even though a lot of time-requiring tasks come up within a law firm, time and energy must be focused on work that’s actually billable. Oftentimes, the central professionals of the firm, the attorneys, end up handling tasks that could be delegated. The goal should be to ensure every person at the firm is focused on the work that yields the most value. That may mean attorneys learn to delegate incoming calls, filing, and other tasks to a paralegal. Likewise, this could mean outsourcing an accountant to prevent paralegals from having to focus on invoices and collecting payments.
2. Harness the Convenience of Technology
Legal technology is incredibly valuable, yet severely underutilized by many law firms. Implementing the right tools may reduce overhead costs by freeing up time, while also enhancing profitability because professionals can focus on billable tasks. The statistical data here speaks for itself. As much as 68 percent of leading law firms report larger profits by using technology. One growing area of legal technology is intelligence software that automates otherwise time-consuming processes. For example, some law firms make use of technology that uses analytical metrics to perform case assessments. However, something as simple as custom time and billing software can free up time and negate lost hours.
3. Track Law Firm Profitability Metrics
Profitability metrics give insight to support profitability over the long term. Specific metrics offer incredible insight into making a firm more efficient and profitable, such as:
• Billable hour analyses
• Received payments versus agreed-upon payments from clients
• Billing entry dates compared to payment-received dates
With a closer look at the numbers, pointing out where profits are lost is easier. For example, if there is a discrepancy between what clients are being quoted for services and what they actually pay, this would indicate an issue. Likewise, if an attorney in the firm is only getting 10 billable hours per week when they are at the firm 40 hours, this would indicate the attorney is not being used where they can harness the most value.
4. Manage Cash Flow Effectively
Law firm profitability suffers if cash flow management is lacking. Keeping tabs on all incoming payments and outgoing expenses offers a closer look at how the firm could be losing money or where changes need to be made to maximize profits. For example, if the firm has a number of unpaid invoices, this could indicate problems with billing or lacking payment options for clients.
Work to streamline the collection process so all billable hours are paid in a timely way. Make sure to accept electronic or card payments so clients have an easy way to pay their bills. Further, implement and follow a stringent protocol when it comes to late payments and unpaid accounts.
5. Focus on Clients
Sometimes, enhancing law firm profitability is all about how the firm operates when it comes to keeping clients pleased with services. A client-focused firm delivers positive experiences that keep clients coming back. Those clients tell other prospects, which leads to a profit-building chain reaction.
Small tweaks and adjustments in operations help ensure clients walk away with a good impression. For example, something as simple as offering initial consultations via videoconference—something many modern consumers prefer—may enhance the overall experience. In turn, a law firm may see more client interest and more profit.
Find Support and Maximize Profits
Strides to seeing higher profits in a law firm are not always major changes. Most often, small adjustments make a major difference. Those changes may be outsourcing certain aspects of the business, implementing the right technologies, or even just finding the right guidance. If you are interested in solutions that could help your law firm enhance profit potential, connect with The A Team to find out more.