Knowsley Management Services
Legal Practice Management Consultants
I hope this October edition of KMS “Robservations” finds you in good health and prospering…
I have again briefly covered for you a few more issues that are impacting lawyers in small-medium firms in Australia and New Zealand…
I trust you continue to find the content of interest and value to you in your practice…
The strongest thread from our consulting in the past month has been related to Budgets, working capital management and cash flow…
It’s time I feel for a reminder that even small firms should have a budget for Raw Work in Progress Production, a budget for investment of FirmTime™, a budget for Professional Fees billed (Invoices raised), and a budget for Cash Received.
In relation to the last two, in the budget there should be items for Fees Billed and Received on behalf of team members who have since left the firm. These can be quite large amounts, and absence of an item in the budget will tend to inflate performance against budget as months unfold.
The paralegal referred to in the example below currently has $150,000 in unbilled Raw WIP, and historically realises it on average 108.8 days after recording the work done, and recovers over 100%.
Fees and cash expected to flow from team members who have left, legal or paralegal, need to be budgeted for.
Where relevant, support staff who carry out paralegal work should be included in the budgets. This has always been my view, but recently I have encountered a number of new clients where it is not the case. No compensatory increase in budgets is made for the other team members who utilise the support to get considerable aspects of their work done!
Lower cost team members can be a significant benefit to clients in a range of tasks that are not legal work requiring a lawyer. The lawyers can save that time and focus on more complex, legal, work.
A simple example I saw in a firm this week was a paralegal working in the Contested Estates area who did a significant amount of fact-gathering and preparation early in matters, and who was credited with over $36,000 in fee shares in September. (Annual WorkPlan™ target in the Budget for new Raw WIP created, $190,000).
The lawyers in the firm working in this area of course have their own fee budgets, and the combined effect is $190,000 pa greater than firms who do not properly recognise the impact.
Finally, it is a major impact on a firm in terms of resources utilisation, to not budget for FirmTime™ investment.
In many firms that is above 25% of the total available day. What business can afford to have in excess of 25% of a critical expense not monitored in terms of planning and actual utilisation, let alone effectiveness and outcomes?
Social media is a significant area of today’s Marketing, but I caution firms to retain balance in their efforts, and not over-invest “blindly” in social media to the detriment of other historically effective investments of time and money.
This is especially so if the investment in Facebook, Twitter, LinkedIn etc. does not appear to be providing an excellent return.
There are still too many firms in which management takes the view that despite no concrete evidence of strong outcomes, social media is exceptionally important and should be invested in nonetheless.
Step one is to institute far better tracking techniques, for social media outcomes, and all other areas of marketing of course if not presently in place.
Step two should be to carefully assess the origin of new enquiries and instructions to determine if potentially rewarding areas and communication channels are being left unmined…or under-mined!
The lack of careful tracking is often evident in firms where I am told that little new enquiry/work comes from source X, when proper tracking and analysis demonstrates this to not be the case at all.
As with many things, don’t let gut-feel be the determining factor when facts would be far more useful!
Most of the discussion around billing by the hour focusses on real and alleged lack of value to clients in the method.
This month let’s look at why it can also be very limiting for the lawyer.
Keeping it simple, if the lawyer says they will do certain legal work for the client, and will charge $445/hr plus GST, and they spend 4 hours doing the work, and get a great result and the client is happy, it is difficult then for the lawyer to seek to charge more than $1,780 plus GST. Not always impossible, but definitely a difficult conversation.
In fact, I often see lawyers who fail to correctly record that they spent the 4 hours, and also many who do record the 4 hours work but aren’t confident to charge it all.
Just one alternative for the lawyer would have been to spend a little extra time at the outset determining what the client’s main concerns and expectations were, and to what degree they valued certainty in the price.
That little extra time may have allowed the lawyer to offer the client a fixed price of $2,445 plus GST, and have that offer accepted. That would lift revenue at least $665.
The lawyer may have even been a little more sophisticated, and prepared to experiment with giving the client more options.
A lawyer skilled in pricing may have crafted four basic offers, clearly scoped a little differently in terms of work to be done etc., and used “price anchors” top and bottom at $1,785, and $3,885, with the second offer again at the $2,445 above, and the third at say, $2,885.
Interestingly, 4 out of 5 clients will choose the $2,885 option. There is a lot of psychology at play, but most lawyers do understand clients’ egos in the main cause a mentality of, “You get what you pay for”. Unfortunately, they often lack the time, and perhaps the self-esteem, to consistently act upon it and this impacts heavily on their revenues and profits.
Compared to the $1,780 figure above, the lawyer can have the same happy client willingly paying a bit over $1,000 more because of the value they perceive, and that is exclusively extra profit.
Certainly lawyers have not in the main had enough training, and enough scope under old regulatory environments, to be good at this sort of pricing experimentation.
However, we are in a very different environment now, closer to a level playing field with other forms of business.
With client expectations rising, lots of new forms of competition, and profit margins in most law firms falling, survival is not only about improving efficiency using technology, and attracting higher volumes of work to lift revenues.
A key aspect of prosperous survival in the immediate future is acquiring, testing and applying much greater skill sets in pricing, and designing real options for clients to choose from. The ubiquitous “Win-Win”.
As usual, some will bemoan such big cultural changes in the Profession, but the bottom line is that it is very hard to service clients’ needs well if you are struggling financially, or worse, no longer in business.
In each issue I look to introduce comment about a management issue that revolves around “the numbers”.
The short item this issue is on the dangers of being seduced by the apparent simplicity of averages.
Consider, Lawyers and high-quality steak…if asked how long you should grill a good steak for, many people, lawyers included, will instinctively offer their opinion based on an average time.
In fact, the best answer is probably, “It depends”.
How hot is the BBQ, and how evenly is that heat distributed? What type of steak is it, and how thick is it?
There are plenty of other questions that may be asked to gain background information to inform a decision.
Importantly, given we should be preoccupied with the value perceptions of the consumer, what does the person who is going to eat the steak want?
The average bill of costs rendered by a firm this month is $30,000. When we bother to dig deeper and discover that the firm rendered just two bills, one for $2000 and one for $58,000, the usefulness of the average this month is very limited indeed!
From a slightly different angle, your PMS appears defective in that it seems to be out of balance in the P & L this month by $1. Is it worth investigating why, for $1?
Maybe yes, if you discover an incorrect entry in Revenues of $100,001, and an incorrect entry in Expenses of $100,000.
The bottom line…averages can sometimes be misleading, or at very least not particularly useful.
It’s “survey season” again.
Here’s a thought…you can participate in a Benchmarking Survey, and some firms should, but consider, is it likely to galvanise you into action when the results arrive on your screen?
You might better consider getting someone very experienced to have a look at your practice specifically…it may be more useful and valuable.
Here’s the ultimate irony…on a number of occasions in my consulting career I have been engaged to review the results of Benchmarking Surveys firms had participated in. Yes, I was paid to advise the Principals and management teams what it all meant for them!
There’s surely a message in that.
KMSProfitGapAnalysis™…click here for full details.
Lawyers unfortunately have a well-deserved poor reputation for being effective marketers.
Their core training doesn’t align well with skills and attitudes needed for good marketing.
To help interested lawyers get on the right track, at KMS we offer a service called KMSMarketingPower™…
For a small fixed fee, we will analyse a number of key aspects of the firm’s existing situation and the efforts of the firm in marketing, and point to key areas where we would add things or do things differently if it were our firm.
Our focus will be on areas where firms can learn to generate more of their particular desirable instructions at very reasonable cost.
The advice we give will provide a hard-hitting assessment, and clear guidance for a few simple things the firm could do better, and we provide a telephone conference to discuss any issues arising from our advice, within the fixed investment.
There is no further obligation or pressure to use us to assist beyond the provision of that advice.
To get the ball rolling please just email me and let me have your name and phone contact details, and preferred contact times, and I’ll get back to you promptly.
Since last issue we’ve helped firms with their Vision Statements, assisted a small single-state firm with a multi-state virtual expansion, assisted with a team member performance issue, conducted more in-house training on the Business of Law, spoken again to Law Societies’ CPD sessions on the tight links between Pricing, Marketing, Effectiveness and Profitability, advised further on Practice Management Software, advised on remuneration reviews, advised on advertising for key employees, advised on the development of a Money-Back Guarantee on professional fees, assisted with reviews of SEO efforts, completed over 100 KMSFeedBacks for September for individual lawyers and many support staff, reviewed more than forty-five draft items of content, mentored Principals, assisted firms with extracting better information from their PMS, assisted with design of firms’ incentive schemes, and again helped a number of firms with aspects of their marketing efforts.
If some of this content has been of interest and value for you in your practice, you will find other related content here…
My LinkedIn posts…
KMSWebsite includes an archive of all earlier newsletters…including all issues of “Robservations” and KMSProfitPower Tips back to 1996.
My LinkedIn Discussion Group… Excellent Management In The Small Law Firm