October 18, 2006
RULES: Another Path to Law Firm Success
Successful law firms pay attention to the numbers. Usually, I stress the importance of David Maister’s Law Practice Business Model. It is worth noting that there is an alternative approach for expressing the basic key factors that determine financial performance. It is the RULES model.
RULES is an acronym that stands for the following:
R-rates/realization
U-utilization
L-leverage
E-expenses
S-speed
While not expressed in the form of a mathematical formula, RULES identifies the basic performance drivers that deserve the constant attention of the managing partner.
Both RULES and Maister’s formula deal with rate, realization, utilization, and leverage. Both imply the need to control expenses. Maister does it by focusing on margin (revenue less expenses) whereas the “E” in RULES implies the direct need to hold expenses to their minimum or appropriate level. The “S” in RULES covers a critical performance factor overlooked in Maister’s model—uncollected fees.
Providing legal services doesn’t put cash in the bank, cover expenses, or put money in partner pockets until those services are billed and collected. Speed—how fast you get bills out the door and how quickly law firm clients pay those bills. Your Speed determines realized revenue and influences adjustments, write-offs, and bad debts.
The two related metrics I encourage firms to track are:
Days of unbilled fees and expenses for work in process
Days of billed but uncollected fees and expenses for accounts receivable
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Filed under Law Firm Bus Model by Tom Collins