Law Firm Profitability
August 09, 2021
A critical question for any law firm is how to remain profitable while staying competitive, recruiting top talent, promoting DE&I, and investing in innovative solutions while at the same time still meeting client demands and delivering exceptional client service? Increasing associate salaries has become table stakes in the intensifying competition for talent, but how can a firm absorb this new expense while maintaining its bottom line?
The easiest way for law firms to increase revenue and improve profit margins is to limit profit leakage by substantially reducing write-offs, write-downs, and waste. Budget overages, rejected invoices, mismanagement of resources, and uncontrolled vendor spend are some of the most significant leaks that law firms can readily address.
On average, law firms write off anywhere from 8%-12% annually – which can reach tens of millions of dollars in AmLaw 100 firms. An AmLaw C-level executive recently told me improving their billing cycle by one day annually would recoup $5 million of revenue.
The question, therefore, becomes how to reduce write-offs, write-downs, and waste. There’s no easy or overnight solution; as the saying goes, “the devil’s in the details.” But an excellent first step is to enlist the assistance of experienced experts, like those in Stephen Allen’s consulting team at Elevate, to assess your firm’s profitability loss and identify where leaks occur. This facilitates informed decisions that weigh the value of potential ROI against the costs of staying the course. Remember: the risk of doing nothing goes beyond the cost in profits and can impact client and employee retention. Just as law firms that adopted technology early were able to adapt to COVID quickly and with relative ease, the firms that tackle profit leakage sooner rather than later will better weather economic uncertainty and enjoy a competitive advantage over their peers.
How can Elevate help? We have extensive experience developing and providing profitability solutions. We know how to quickly and accurately identify a customer’s particular challenges, goals, and processes and then develop a tailored end-to-end solution that combines people, processes, and technology to deliver meaningful results. Elevate recently launched a new Products line for law firms to complete this trifecta and making our company a stand-alone enterprise solutions partner in legal.
In a future post, we will discuss another way to improve the bottom line at a law firm: identifying new revenue streams. In the meantime, don’t delay tackling profit leakage!
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