January 25, 2023

 Sarah Wilson-Ward

outside counsel billing law firms optimisation law firm business strategy

As 2023 begins, law firm leaders – already grappling with a slowdown in demand – have plenty of reasons for restless nights. Their biggest concerns stem from the growing likelihood of a recession and the increasing numbers of law departments focusing on limiting or reducing legal spend. Firm revenues and profits are at risk, especially in the wake of increased overheads from the recent ‘Salary Wars.’ How, then, can firms remain profitable without compromising longer-term goals in 2023?

The question is especially challenging as the traditional responses of many law firms to these sorts of circumstances no longer seem viable. With law departments poised to push back against aggressive attempts by firms to charge more, raising rates is no panacea. In fact, it courts disaster, as law departments struggling with ever-tightening budgets will already be looking to “vote with their feet” and drop firms that do not offer superior value.

The other obvious alternatives – smaller partner payouts and personnel cuts – come with their own risks. A team disgruntled by lower profit distributions may find it more difficult to deliver the best work to clients. Moreover, as the 2008 economic downturn demonstrated, an unstable law firm partnership can break the back of a firm already under economic pressure. On the other hand, a firm getting headlines for cutting its ranks and reducing bonuses will face an uphill climb in attracting and retaining talent.

However, all is not lost. A firm can maintain profitability and avoid pitfalls of the approaches mentioned above by concentrating on how it operates as a business. Doing so is simpler – and often far more impactful – than many lawyers imagine.

For example, scoping matters more accurately enables a firm to optimise its use of legal professionals while bolstering its standing with clients who need accurate and reliable projections of legal spend. Vetting bills for adherence to client’s outside counsel guidelines (OCGs) enables a firm’s lawyers to spend more time doing substantive (and revenue-generating) work and less on administrative chores. Improving “billing hygiene” also improves client relationships and distinguishes a firm from competitors unable or unwilling to adopt better ways of doing things.

A firm that invests in optimizing operations and back-office activities improves the morale and productivity of its team – resulting in greater efficiency and lower attrition. This enables a firm to hold the line on rates – a powerful competitive differentiator for corporate clients whose law departments labouring under stagnant or shrinking budgets. Law firm leaders who act now to improve how their firm runs as a business will retain clients, attract new ones, and perhaps even find sleeping a bit easier.