January 11, 2007
Size Does Not Have to Determine Law Firm Partner Income
Partners in smaller law firms do not have to settle for lower income. The Juris Law Firm Economic Survey found that even the smaller midsized firms had some representation among the top performing 25 percent of law firms. Nevertheless, it was true that the smallest firms were the most likely to be in the bottom quartile of partner income.
What makes the difference? It isn’t size alone. Certainly, firms with 10 or fewer attorneys live closer to the edge. The loss of a client or a key lawyer or a significant increase in a particular cost such as rent can have a very sudden and material adverse effect on partner income. So, too, can the admission of a new partner as leverage falls. It is also certainly true that firms with 10 or fewer attorneys often don’t have access to the support resources in the areas of information technology, finance, and administration that are enjoyed by firms with even just a little more size.
Considering the greater partner income sensitivity to adverse events and the challenges faced on the infrastructure and management side, it’s not surprising that the smallest law firms have a greater probability of performing poorly in terms of partner income. But with that being said, even the smallest of firms can achieve very significant levels of partner income—as good or better than the biggest of firms—if they manage their practice with a strategic plan and take proactive and disciplined action to ensure they perform well across the key profit drivers for law firms.
The number one reason many smaller firms underperformed involves pricing. The Juris Survey indicates that smaller firms tend to under price their services relative to larger firms either out of pricing inexperience, a lack of competitive knowledge, or an inability to communicate their value proposition—the expressed or implied reason prospects should select them over a larger firm.
Rather than price, small firms should look for a competitive advantage elsewhere. That usually requires special knowledge of an area of law as it applies to particular kinds of prospective clients within a defined jurisdiction. A law firm that specializes in a given industry, for example, can develop an understanding of that industry in a way that will elude larger competitors lacking the same narrow focus. That focus has many advantages and those advantages can be parlayed into the most important competitive advantage of all—market leadership.
While pricing is important, other key drivers play an important role as well. Top performance law firms, regardless of size, pay attention to all of the profits drivers. They understand the Law Firm Business Model. They pay attention to the numbers. In addition to price, they use leverage to their advantage, pay close attention to utilization (individual attorney productivity) and keep realization high. Partners in the firms that do those things, regardless of firm size, earn two to seven times the income of those who don’t. For more about the Law Firm Business Model, read the prior post Measurement Improves Law Firm Performance.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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Filed under Law Firm Bus Model by Tom Collins
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