A closer look
Five steps to better profitability.
By Richard G. Stock
Few lawyers, and too few clients, understand the economics of their practice and firm beyond the simple formula hours x rate = billings. Production-based models are a treadmill that average out the value of legal services, because every hour has the same price (except the discounted ones).
Firms downplay business origination because it’s too divisive. Partners and practice leaders take little responsibility for the effective and profitable use of associates, students and paralegal employees. And finally, costs in the firm are almost always assessed across the board as "overhead" — and then too often assigned on a per-lawyer basis.
But if you follow these five steps, you can harvest the best value from the legal services your firm is providing in 2004. Most steps can apply to individual practices as well.
1. Identify the firm’s top 25 clients and prospects, along with the type of work the firm realistically expects them to supply in the next two years. Then identify the top five for each partner. This constitutes the beginning of a business plan for the firm.
2. Go one step further and quantify the billable time for each category of work for the next two years. Express this work according to levels of experience — senior and junior partner; entry, mid-level and senior associates; paralegals and students — required to complete it. Then carefully examine who’s actually doing the work (usually, it is under-delegated by one or two levels). Develop work intake and allocation standards and protocols for each practice area.
3. Ensure that cash in is at least 90% of standard rate for every fee-earner in the firm. There has been noticeable slippage in firm targets in recent years. It’s not enough simply to set billing targets; they have to be at the current effective rate for the right number of hours. With the exception of highly leveraged practices, few firms should be satisfied with less than 1,600 hours.
4. Perhaps as much as 20% of every billable hour goes to pay for staff, space and other operating costs. Firms are long overdue in re-examining their infrastructure and production support requirements. These could be cut in half, not because there is waste, but because the support functions (document production and storage, arranging meetings with clients and colleagues, etc.) are part of an outdated business model.
Few firms have set up documented expense reduction plans, other than perhaps reviewing lease issues every 10 to 15 years. For the most part, partners stand in the way of real change, or they agree to subsidize inefficient practices in other parts of the firm. The available savings represent 10% of every billed hour, which can amount to a 20% improvement in profits per partner.
5. The final step is to price the work properly. Yes, the rates are higher than ever, but they’re still chaotic and illogical in many respects. Individual partners are left to control their standard rates, arguing that they will lose the work or that they are prepared to make less money within the firm’s compensation system.
Associate rates are copied from other firms using surveys and benchmarks that bear little relationship to the costs of the associates. Rates of senior associates and junior partners overlap or are severely compressed. Rates for partners proliferate, with the firm having more interest in its budget requirements than in proper work allocation. And, most importantly, rates don’t always reflect the relative complexity of the work. Institutional clients in particular want to see some correlation between the two.
There are no quick fixes in pricing the work and the lawyer. But if it’s done well, everybody wins.
Richard G. Stock, M.A., FCIS, C.Adm., CMC is a partner with Catalyst Consulting, designated the Preferred Supplier for Legal Services Consulting by both the CBA and the CCCA. Richard can be contacted at (416) 367-4447 or at www.catalystlegal.com.
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Changez de formule
5 étapes vers une meilleure rentabilité.
Vous pensez que l’aspect économique de votre pratique se résume à la sempiternelle formule mathématique : (heures x taux = facturation) x nombre d’avocats. Vous auriez tout intérêt à changer de formule! Un plan d’affaires en cinq étapes suffira à accroître la rentabilité de votre cabinet.
1. Identifiez les 25 principaux clients actuels ou potentiels de votre cabinet et le travail auquel vous pouvez vous attendre d’eux au cours des deux prochaines années.
2. Évaluez, pour une période de deux ans, le nombre d’heures facturables qui découleront de ce travail. Élaborez ensuite un système d’allocation de ce travail pour chaque domaine de pratique. Assurez-vous que ce système favorise la délégation.
3. Il n’est pas suffisant que chaque avocat ait atteint sa cible de facturation. Vous devez aussi vous assurer qu’au moins 90% des montants facturés ont été récupérés.
4. Diminuez les coûts reliés à vos infrastructures et à votre mode d’organisation. Repensez vos façons de faire et d’occuper l’espace.
5. Fixez le prix du travail de façon logique. Trop souvent, les associés refusent de hausser leurs taux de peur de perdre leurs clients alors que les taux horaires des salariés sont copiés sur ce qui se fait ailleurs. Rappelez-vous que les clients souhaitent voir se refléter une certaine corrélation entre la complexité du travail et les honoraires réclamés.
Bien sûr, il n’existe pas de remède miracle pour une meilleure rentabilité. Pourtant, en tentant de répondre adéquatement aux défis posés par ces 5 étapes, vous devriez vous rapprocher du but. |
