3 Tips for Increasing Law Firm Profitability
Partners and shareholders are constantly looking for new and innovative ways to increase law firm profitability. Here are three effective methods to cut costs and increase profits for your firm.
Increase Rates by Finding A Niche
In the past, most large law firms were able to raise rates an average 7% each year. However, when business prosperity plummeted it the mid-2000’s, the number of complex business transactions also dropped, as did the overall demand for legal services. During this time many law firms were left with more lawyers than cases which forced them to drastically reduce rates in order to win work from large clients. Since then, the economy has steadily improved. Yet, many law firms are still unable to charge the large retainers they were once able to demand. Firms are still charging less than they would like and/or give large discounts to win work from the competition.
However, law firms are finding a way to charge higher rates and get more work – finding a niche. If you’re the best law firm around at a particular type of case, you can demand a higher rate and will get the amount of work you’re looking for. Therefore, do some research and decide what your firm does best, then capitalize.
Prove Competence to Improve Billing & Collection
Nothing impacts a law firm’s ability to receive timely payments from clients more than their level of service. For example, a law firm that provides a large number of fungible services for a client, that other firms could do as well, or could just as well be done within the firm, is not likely to receive a timely payment and will be treated like any another vendor. Unfortunately, this means you’ll be waiting longer to for payments and are more likely to have invoices questioned. However, if a law firm can provide a critical service for a client, at a high-quality, that no other firm can perform as well, they are much more likely to be seen as an indispensable part of their team. This means bills will more likely be paid on time and with less hassle. It’s really that simple.
Ultimately, if a law firm can deliver high-quality legal services in their area of expertise, and can effectively deliver that service, it will have the leverage to collect bills promptly and with minimal hassle.
When it comes to increasing law firm profitability, there are expenses that can be cut and, there are essential expenses that cannot be cut without affecting your firm’s quality of service. With essential expenses, there is really no reason to cut corners, spending money always makes sense if you’re going to make money. Therefore, the goal of managing expenses must be to look for services that are able to be cut so that spending can increase in areas that are essential and profitable. However, some firms struggle to identify and pinpoint areas of un-essential spending and unfortunately money continues to hemorrhage.
To combat this frivolous spending many law firms are turning to expense reduction consultants. These type of consultants are experts at analyzing your firm’s average usages and negotiating with vendors on your behalf. In fact, most work on a contingency basis and don’t get any money unless they find savings.