I spoke Friday at the ABA Techshow on profitability and the key drivers of partner income.  At the end, I posed some questions to the audience to facilitate discussion on the findings of the 2007 Law Firm Economic Survey.  One of the questions I asked was "why would firms have low associate utilization?"  A partner in the audience responded, "Partners don't trust them to do the work."

That is a common answer I hear from partners.   However, without fully utilized associates, firms can't leverage.  Leverage affects the growth of the firm and there was a strong correlation between leverage and income by respondents of the 2007 Survey.  The challenge for small to mid-size law firms is finding ways to increase associate utilization so that the firm positions itself to leverage.  If trust is an issue, then confront it.  Mentor associates so that you can trust them to do the work as you would.

An article written by Allison Wolf in her Lawyer Coach Blog titled The Fine Art Of Delegating was the basis of a post by Tom Collins in August, 2007 called Spinning Increases Law Firm Income.   Both Wolf and Collins stress that partners who aren't "spinning" work to associates need to face the reasons that prevent them from delegating - don't let the reasons be an obstacle. 

Wolf writes:

Delegation is one of the lawyer behaviors that need to be rewarded by compensation committees. For a law firm to be most profitable partners are required to spin work down to juniors. Savvy compensation committees look at the combination of billable hours and spin earnings when allocating partner income.

Collins adds:

[A] firm’s compensation plan is often the reason Why Partners Hoard Work. That, in turn, leads to poor leverage, underutilization of associates and high turnover.

On the issue of trust, Wolf writes:

Successful people surround themselves with talent. Your challenge is to help develop the juniors so that they do the work as well if not better than you do.

Formal mentoring programs are still rare in small and mid-size firms, yet the need is apparent based on the findings of the 2007 Survey and from what I hear from partners.  In a year where inflation may very well end up over 4%  (over 1% higher than the annual average the past 10 years), firms can't rely on rate increases alone to maintain income.  Develop programs to help associates manage more caseload.  Give partners an incentive to delegate and mentor.  Those who do will create the circumstances necessary to leverage and grow the firm, ultimately leading to sustainable increases to income.

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Measurement improves performance.  If you measure the following 5 key performance indicators, your profits per equity partner will increase.  These drivers are:

• Leverage
• Rate
• Realization
• Productivity
• Margin

Leverage in the above model is based on head count leverage.  Head count leverage is the ratio of equity partners to non-equity fee earners. 

Rate in the above model is based on the effective billable rate for all fee earners.  You get this by adding all fee earner rates and dividing the sum by the number of fee earners.

Realization in the above model is based on the amount of fees billed against what was worked.  You get this from dividing the sum of all fee earner hours billed by the sum of all fee earner hours worked.

Productivity in the above model is the sum of all fee earner billable hours divided by the total number of fee earners.

Margin is net income divided by total fee revenue.

Here is the scenario.  Your firm has 29 fee earners.  Eleven equity partners, eleven associates/non-equity partners/of counsel, and seven paralegals.  You have a total of 50 employees including equity partners.  Your effective billing rate is $275, your average fee earner productivity is 1,690 per year, your firm writes down or discounts an average of 10% of work performed (90% realization) and your cost per head is $140,903.   

Based on the above, profits per equity partner would be $462,255.  

 

 Now, let's play with the numbers.  First, we'll look at rate.  If we increase rate by 6.5% (which was the average rate increase predicted by respondents of the 2007 Law Firm Economic Survey by LexisNexis), factor in cost inflation (currently around 4.25%), total PEPP increases to $486,314, an change of $24,059.

Factoring inflation, the increase in income is not substantial.  However, it underlies the importance of increasing rates annually to avoid devaluing your rate due to inflation.  The secret to beating inflation, though, isn't rate;  It is productivity.  High productivity creates the gap (margin) between cost (which includes inflation) and revenue.  The higher your margin, the less inflation hurts you.  The lower your margin, the more inflation works against you.

So let's consider productivity.  If you increase billable production by 100 hours per fee earner per year (a meager 24 minutes per day based on a 50 week year), PEPP increases to $527,505, a change of $65,250 per partner!

 

This is one way to make a substantial increase in income with very little change in your workload.  In fact, you can likely make up the 24 minutes per day by just entering your time as you are doing the work.  Tools such as MyJuris Mobility take advantage of mobile devices such as Blackberry devices to recover nearly an hour per day of productive time. 

Finally, we'll consider leverage.  If you add two non-equity fee earners (assuming you have the business to necessitate such growth), PEPP increases to $512,686; a change of $50,431 per partner. 

Best performing firms, however, do well in several indicators.  If you were to combine the above, the results would be striking.  If you increased rate 6.5%, added 24 minutes a day to each fee earner's billable goal, and added two associates, you would increase income from $462,255 to $609,677, a change of $147,422 per partner.  The effect of compounding factors works to increase the effect of each indicator on income more than you would by increasing any of the indicators alone.

Even if you only increased rate and productivity, you would increase PEPP by $90,733.  Click here to download a sample spreadsheet (you must be registered to this site to access the downloads page) and work the numbers yourself.  Use it to forecast your increases and measure your performance to reach your financial goals.  

Morepartnerincome.com is sponsored by Juris®.  For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

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Much is said regarding the importance of leverage for increasing per partner income.  However, changing headcount leverage is not an easy task.  There are HR considerations (do new attorneys fit in, do they have the right attitude, will they stay for the long term, etc) as well as existing habits (partners not sharing work).  However, based on the 2007 Law Firm Economic Survey from LexisNexis, if your partners can learn to share work, more immediate benefits are possible through billable hour leverage.

 

The way you get there is through increasing billable hour requirements.  Does this mean more work?  Hardly.  How about just providing blackberries for your fee earners and utilize tools like Juris' Mobility Connector?  According to a study from Ipsos Reed, blackberry users recover 54 minutes a day in productivity.  That improves productivity by roughly 196 hours per year per fee earner.

 

Next is to put your partners to work - non-billable work.  This year is a critical year for law firms.  If in fact we are headed towards an economic down cycle, there will be tighter budgets for clients and that means price pressure on law firms.  Relationships are key.  Lawyers need to market themselves as not only experts, but trusted counselors.  It can't be said enough that if your equity partners are not willing to get out of the office and maintain as well as create new relationships, non-equity partnership may be a better fit.

 

What to do with the work that is being left on the equity partner's desk?  Give it to associates (or non-equity partners).  Don't let them become idle!  The 2007 survey shows that there is a strong correlation between associate productivity and per partner income.  If you have associates already billing at or near 1,800 hours, then it is time to hire new associates.  If you want to push that number to 2,000 that is fine, but you don't need to work that hard to make your target profit.

 Assuming you have the workload to justify new hires (including taking the extra work from partners who are out building and maintaining relationships), increasing head count leverage is your best bet for increasing per-partner income. 

 

 

 

In the above scenario, based on 29 fee earners working 1,610 hours a year, profit per equity partner totals $284,398.  Below, just by adding two associates and increasing hours a mere 12 minutes a day (50 hours per year per fee earner), per equity partner profit increases nearly 20% to $340,418. 

 

 

Just think what the above would be if you gave fee earners blackberries and you recovered an hour per day from each of them utilizing tools like MyJuris Mobility.

 

Head count leverage is a valuable tool for increasing income but is dependent on workload.  If equity partners are not willing to pass work to associates and get out of the office to build and maintain relationships, your firm is leaving both scalability, money and eventually your own talent for other firms to take.

 

Morepartnerincome.com is sponsored by Juris®.  For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

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The 5 key performance indicators all law firms should measure are:

• Rate
• Realization
• Utilization/ Productivity
• Leverage
• Margin

This week each day I will focus on one of the above. Today the focus is on leverage.

Head count leverage is by far the most difficult indicator to change. Hiring new associates involves much risk, plus you not only need to have the workload, you have to have partners who are willing to share that workload. Some previous posts related to leverage are What Is Leverage?, Best Law Firm Practices for Increasing Leverage, Handling Complexities of Law Firm Leverage, Billable Hours vs. Head Count Leverage In Law Firms, and Leverage Can Help and Hurt Law Firms.

 

The two types of leverage that will be the subject of this article are head count leverage and billable hour leverage. Head count leverage is the ratio of all non-equity partner fee earners to equity partners. Billable hour leverage is the total sum of all non-equity partner fee earner billable hours divided by the total billable hours of equity partners. The goal is to increase leverage if your partners have reached or exceeded the target billable hour threshold per year. What that number is varies from firm to firm, but in the 2007 Law Firm Economic Survey by LexisNexis , we used a baseline of 1,800 billable hours. I consider 2,000 hours (40 hours per week based on a 50 week work year) as the maximum reasonable output that one should expect from a fee earner. Of that, 4 hours per week can be reasonably dedicated to non-billable activities. As so many who argue for alternative fee arrangements, there are only so many hours an individual may work. After reaching this threshold, it is imperative that work is passed to another fee earner if you want to increase income over the long term (ie, firm growth). Increasing the headcount of non-equity fee earners to handle accretive work (as opposed to absorbing work that could be handled by others) is central in making leverage work to increase income.

 

According to the 2007 LexisNexis survey, partners are still billing more than associates but continue to project that they will pass work on and reduce their own workload. It appears talking about it is easier than doing it.

 

Head count leverage is obviously risky if you don't have full utilization of your existing fee earners. If you add staff before full utilization, you are merely absorbing someone else's work - a sure way to lower profits. Plans to increase head count leverage are discussed in years, not months. First and foremost there must be a need. Otherwise, it isn't going to benefit the firm. Still, if used correctly, increasing leverage will increase partner income. The best performing firms in the 2007 LexisNexis survey also had the highest head count leverage.

 

 

The best performing firms also had the highest billable hour leverage. This is where firms can make immediate changes and get results measured in months. The key is measuring fee earner productivity. In mid-size firms, partners typically outwork the associates. In order to benefit from leverage (whether it be head count or billable hour leverage), associated must be fully utilized. Before I go any further, let me clarify what I mean by "fully utilized". It doesn't mean "work the suckers until they keel over". It means determining what the maximum amount of billable hours should be (governed by firm culture and reasonable expectations) and don't hire a single person until associates reach that threshold consistently. The whining about associates being overworked may be true in biglaw, but it doesn't appear to exist in mid-sized firms. In mid-size firms, partners are the overworked ones and most don't complain. Finding young associates who have proper work ethic is more the concern (as one managing partner told me recently, "we can't find associates that want to work!") but that is a topic for another article.

 

What are some ways to increase billable hour leverage?

• Increase paralegal hours or don't retain them. Paralegals are chronically underutilized. If you don't intend on using them, don't hire them. If you only have 600 hours of billable work for a paralegal and your associates are billing 1,300 hours, the paralegal is lowering both productivity and effective rate.
• Introduce partner caps on billable hours. This is one I expect will be well-received by work hoarders. The idea is to set a maximum annual billable hour requirement - once reached, all further work must go to client development and all billable work must be shifted to available resources. This is a drastic measure and should be instituted only to initiate change when other attempts at shifting workload have failed. It is not feasible over the long term and in firms that have a lockstep compensation system it isn't a good idea period. However, excessive workload is an important requirement to increasing leverage. Client development is key to bringing in more work and partners are in the best position to do rainmaking activities. Whatever it takes to get partners to act like owners of a company (not a confederation of sole proprietors) is worth trying.
• Mentoring activities. Mentoring is a nonbillable but crucial activity. Encouraging mentoring will force partners to do things besides bill time - things that will ultimately make the firm more competitive and profitable. Mentoring is an art not used enough and associates who are properly mentored are in a better position to succeed and develop into good future partners. The work that would have been done by the partner will then get shifted to the associate. Partners should focus on doing work that demands the highest rate so that there isn't as much of a profit hit when implementing mentorship programs.
• Change the criteria for achieving partnership status. Do away with lockstep compensation and similar paths to partnership. In its place create compensation plans based not only on billable work but firm citizenship. Introduce non-equity partnership programs that provide a place for excellent associates who may not be good owners (ie, don't have the drive or talent for client development and management - ie, grinders).
• Change your compensation plan to reward not only billable activities, but non-billable activities. Make shifting workload with mentoring a measurable performance indicator for compensation purposes.

It takes planning to make leverage work to improve profits. Determine where you want to be in terms of fee earner headcount. Look at where you are today in terms of client development. Look at where you are in utilizing your non-equity fee earners. Make your objectives clear and measurable. Track them - and hold everyone accountable for the success of the plan.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

 

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• Law Firm Business Model - Realization
• Law Firm Business Model - Measuring Rate
• Billable Hours vs. Head Count Leverage in Law Firms
• Best Law Firm Practices for Increasing Utilization

The message is the same year after year and on both sides of the Ocean. Altman Weil’s latest Law Firm Economic Survey shows the continued wide performance gap that separate the best performing firms from the rest of the pack. James Cotterman, an Altman Weil principle was quoted as saying “This performance gap is driven primarily by higher billing rates and better leverage……” 

What is stopping 75% of law firms from successfully implementing a sound leverage strategy? Better yet, what can they do to start capitalizing on the leverage opportunity? The answer is implied in the following paragraph that appeared in The Online Member’s Magazine of the Law Society of Scotland in March 2003:

”Some of the more successful firms are starting to abandon individual fee targets because they can easily be counterproductive. They have moved on instead to looking at team targets, either for fees or more usefully for profitability. Within each team they may look at chargeable hours or other performance measures. Too much emphasis on individual figures can result in partners and other fee-earners hanging on to work, not passing it to more suitably qualified colleagues or to more junior fee-earners. It is difficult to fully reap the benefits of gearing whilst focusing too much on individual fee targets – especially if they are related to bonus schemes.”

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center: 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

 

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Leverage refers to the use of non-equity fee earners, mostly associates and paralegals, to expand the capability of the firm and thereby increase the income that can be earned by the equity partners. Without leverage, per-partner income is limited to what the partners can bill for their own work. Leverage is achieved by using non-partner fee earners working under the partner’s supervision. Leverage is expressed as a ratio– for example, if there are two associates for each partner, the ratio is 2-to-1. Leverage is one of five key performance drivers determining the earnings of law firm partners—Leverage, Rate, Utilization, Realization and Margin.

 

The above mathematical expression illustrating how the five factors impact partner income was first published by David Maister. It is easier to understand when viewed in a more traditional financial statement format:

In the above table, twelve partners share the results of 42 legal professionals (12 partners and 30 non-partner fee earners). The leverage is 2.5 (30 non-partners divided by 12 partners)

The importance of leverage as a driver of per-partner income is illustrated by the following chart taken from the Juris Law Firm Economic Survey for 2005.

The chart divides surveyed law firms into quartiles based on income per partner. The first quartile represents the top performing 25 percent. Those firms earned more than twice the per-partner income of the next highest group.

Effective use of leverage requires prior experience in order for the supervising professional to efficiently instruct, train and mentor the less experienced assigned professional staff. Thus, the opportunity a firm has for leverage will vary with the type and maturity of practice. As a practice area emerges, there are no precedents, no forms, no prior experience, and no accumulated work product. Solutions in such emerging areas have to break new ground. These growth areas typically command the highest fees and clients seek out the law firm because of the firm’s reputation for creativity and for having a smart professional team. Professional work in these trailblazing areas is performed with very little or no leverage. Firms accumulate experience as a practice area matures. They develop work product and increase their ability to use less experienced staff for an increasing portion of the work. Clients seek out these firms because of their successful prior experience handling similar cases. Competition drives prices down. Leverage becomes a more important strategy for achieving a competitive per-partner level. As the practice continues to mature, it will evolve into its transactional phase where the work becomes routine. Prices decline to their lowest level. High leverage combined with high utilization becomes necessary for sound financial performance.

Today most midrange firms are involved in mature and transactional practice areas. Partners have to handle multiple cases or matters at a time. The more effective the partners are at using associates and paralegals to do the work, the higher the firm’s per-partner income will be. Firms that are less efficient at using associates and paralegals will have a lower partner Income. Inefficient acquisition and/or use of leverage in a mature practice area threaten the very continuity of the firm.

Considering the role of leverage in driving partner income, it is surprising that 75 percent of midsized law firms have not successively implementing the strategy. Where AmLaw 200 firms have about three associates for every partner, midsized firms average only a 1-1 ratio. Most do not adequately utilize the small leverage they do have. Partners are logging more billable hours than their associates. Rather than bringing in new business or training others, they are piling up their own billable hours. The result is what you would expect. Midsized firm partners make less income than their counterparts in larger law firms.

The two most noticeable, but related, controllable factors contributing to low leverage are:

Compensation plans that reward partners for doing their own work, and

Partners devoting too little time to new business development

Like the other five variables in the Law Practice Business Model, leverage is too important to leave to an accident of events. It is a strategic issue. The firm partners need to understand the right leverage level for their firm based on its opportunities and income goals of its partners. To find out what can be done, use surveys or benchmarking services like Juris Insight to find out leverage levels being achieved by top performing comparable firms. Second, decide the competitive per-partner income appropriate for your firm. Work with the Law Practice Model to find the achievable mix of price, volume, leverage and margin that will produce your goal level of income.

The list below is a reminder of steps that you can take, among others, to increase leverage and improve per-partner income.

• Increase the portion of time partners devote to business development—set individual goals, measure performance and hold people accountable.

• Change the firm’s compensation plan to (a) favor supervision versus hoarding of work and (b) replace continuing origination credit with more immediate short term rewards for new business

• Centralize the scheduling of non-partner legal talent to eliminate the hoarding of idle resources and to emphasize professional development through work assignments

• Improve recruiting to hire more associates and paralegals. Increase lateral hiring to add experienced associates

• Reduce the number of partners through retirement and attrition

• Lengthen the path to partnership. Raise partnership criteria.

• Create or expand layers (titles) of permanent leverage— paralegals, staff associate, senior associate, executive associate, senior council, non-equity partners, etc.

• Invest in better business systems to provide business intelligence information. Managing leverage like other key performance indicators takes planning, setting goals, measuring performance and holding people accountable. For that, you need the right tools.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

 

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Allison Wolf’s post, the fine art of delegation, is an insightful interview with Adam Pekarsky about the influence of leverage and delegation on partner income. “Spin” is the term Fraser Milner Casgrain LLP uses for work ones pushes down in the organization.

According to Wolf, Pekarsky put it this way: “If partners don’t delegate the lower level work then it’s like driving a formula one race car around a Safeway parking lot.”

Too many law firm partners hoard work to the detriment of long term growth in per-partner income. Wolf makes it clear:

A lawyer who spins down the work keeps the most interesting, highly paid work for his/herself.

The lawyer who spins doesn’t have to write down bills and gets paid at a higher rate.

Another clear message is that partner compensation should emphasize the sum of partner production and spin.

I would expand on Wolf’s message by adding that a firm’s compensation plan is often the reason Why Partners Hoard Work. That, in turn, leads to poor leverage, underutilization of associates and high turnover.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

 

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To understand how the economics of your particular law firm are changing as related to staff leverage, compute and track more than one leverage number:

• Snapshot leverage: The snapshot metric consistently measures the ratio of associates to partners at the same time of year to determine the direction of movement in leverage, i.e., calendar quarter, end of year. For this purpose, the only adjustment should be to convert “part-time” associates to full-time equivalents.
• Performance leverage: The performance metric converts all counts from the end of period numbers to full-time equivalents for the period. For example, a new associate hired at mid-year and in training for three months would be .25 percent of a full-time associate for the year, whereas under the snapshot measure, the associate would count in full.
• Hours leverage: Hours leverage, like the snapshot metric, is a period computation. In this case, the ratio being computed is the ratio of associate hours to partner hours. This computation is self-adjusting for part-time and recently hired fee earners and also is impacted by utilization. Underutilization lowers the ratio and improved utilization increases leverage without any increase in operating cost.

Why is leverage an important management tool? Without leverage, partner income is limited to the income-producing “work” capacity of the partners. Leverage increases partner income by shifting a portion of the income-producing capacity from the work done by the partner to the work that the partner can achieve through “delegation and supervision” of others.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center: 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

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The answer to increased performance is to step back from the daily wars of the law practice and ask, “How can we do this smarter?  How can we tie our revenue and fortunes to something more than just the partner’s billable time?”  Leverage in terms of fee earners, technology, knowledge management, relationships and, yes, pricing strategies is an important part of the right answer.  As for fee earner leverage, its impact on per-partner earnings is well known and understood.  So, it is surprising that 75 percent of midrange law firms are not successfully implementing the strategy.

The chart shown below is one of many included in the 55-page Juris, Inc. Law Firm Economic Survey published last year. The survey reflected the financial performance of midrange-sized U.S. law firms for the year 2005. Survey results confirmed the important role that leverage plays in determining law firm partner earnings. The first quartile, the top performing 25 percent of law firms, earned more than twice the per-partner income of the next highest group.

The same survey indicated that associates in half of the surveyed firms worked less than 1400 hours. Even among the top performing 50% of firms, the average billed hours for associates ranged from 1550 to 1600. The majority of midrange law firms are both under leveraged and underutilizing the associates that they do have. The only way out of that income-limiting box is invest in improved scheduling and delegation with respect to existing non-partner resources. Partners need to give up some short term income shifting their individual effort from “billable work” to business development, recruiting, mentoring and professional development.

That is apparently a hard call for the majority of midrange firms to make.  I’m reminded of a cartoon I saw years ago.  A Gatling gun salesman was standing at the entrance to a medieval tent as the guard, complete with armor and spear, was saying, “I’m sorry, but the general says he is too busy fighting the war to meet with you.”

Work on this year’s annual Economic Survey is currently underway. Click here to participate and to automatically receive the results and analysis without charge.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-374,  e-mail info@juris.com or go to www.Juris.com.

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The question of leverage is becoming more complicated given the increasing use of part-time lawyers and those working flexible schedules. Likewise, a pure head count approach where a firm underutilizes non-partner lawyers produces a misleading result.

 

William Johnston and Kristin Stark of Hildebrandt International address the leverage and underutilization issue in their paper titled Are We Approaching a Profitability Plateau?

 

“While partner/associate leverage is widely regarded as one of the drivers of economic performance (much like realization, productivity, etc.), leverage of billable hours is more important and should be given greater attention than leverage based on body count.  Leverage is often stated as the ratio of non-equity lawyers to equity partners; economic leverage focuses on the total billable hours each group works.  A surprising number of firms, including some of the largest firms in the country, have solid leverage based on body count, but only mediocre leverage when based on billable hours.  These firms should reevaluate their use of leverage. Leverage is only positive when you can keep the timekeepers busy. After all, having a high associate-to-partner ratio is fairly meaningless if the associates are underutilized. Firms where 'body count' leverage far exceeds billable hour leverage typically have a large number of lawyers who neither work very hard as a working attorney nor generate significant business for the firm.  Successful firms have the courage to take action when lawyers under perform, including counseling lawyers out of the firm.”    

 

To see what the authors are talking about, compute your firm’s body count leverage and then compute the ratio of non-partner billable hours to partner hours.  To illustrate, the related numbers for a composite of all survived firms as determined by the 2006 Juris Law Firm Economic Survey were as follows:

 

            Partners: 12

            Associates: 12

            Leverage based on Body Count 1:1

 

            Partner hours:  19,956

            Associate hours: 17,724

            Leverage based on hours: 0.89:1

 

While the body count leverage is 1 to 1, associates' hours were 89 percent of those produced by a partner, reaffirming the chronic underutilization of associates in midrange firms.  

 

Morepartnerincome differs with the Hildebrandt team when it comes to corrective steps.  Conditions on the ground may, in some cases, warrant thinning the law firm ranks of under-producing lawyers. However,  spotty cases of attorneys who are inclined not to “work very hard” cannot account for across-the-board low body count leverage and even lower hourly leverage among 75 percent of midsized law firms. The blame rests not on lazy lawyers, but on law firm partners who hoard work at the expense of delegation and business development.  Chopping heads is a short-term fix to stop the blood flow. The long-term solution is improved scheduling and delegation coupled with increased partner emphasis on business development, recruiting, and association development.

 

Back to the issue of measuring leverage, the issue of relying on body count leverage alone raised by the Hildebrandt authors illustrates why sound management requires a balanced approach in using law firm performance metrics.  Leverage, utilization, price, realization, and margin must all be considered.  Top performing law firms score highly in all metric categories.  When it comes to measuring leverage, part-time and flex schedule attorneys add an additional complication. One simplifying technique is to use non-equity equivalents in computing traditional body count leverage.  Two half-time associates equal one non-equity equivalent, for example. When using equivalents, the fractional measure should be based on compensation not on the billable hours that part-timers generate.  If a flex hour attorney is costing you two-thirds of a comparable associate, they are two-thirds of a non-equity equivalent, even if they are producing at the annual level of 500 or 1500 hours. 

  

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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