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.
Law firms can utilize profitability data to:
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.