We will soon start accepting submissions for the 2008 Law Firm Economic Survey.  This is our 3rd year to conduct the survey and in two short years we have created the largest survey of its kind focused on the mid-sized law firm.  Our survey serves several purposes, including but not limited to:

• Providing a measure of annual performance for mid-sized law firms based on per-partner income;
• Validating the core profit drivers that affect per-partner income;
• Providing expert analysis and content for managers to help increase per-partner income.

This year we are adding a focus on client development activities.  In our 2007 survey, 25% of managing partners responded that marketing and business development activities were their firm's best ways to achieve higher profitability.  In the 2008 survey we are asking managing partners what marketing and business development activities they utilize and how effective each are.

We are also asking questions regarding rate as it pertains to practice area.  I have had more questions regarding what firms charge for specific industries than any other finance-related question.  Attorneys want to know whether they are charging the appropriate market rate for their specific industry.  Since each industry can be pretty specific, we have chosen some broad practice areas that we hope will give firm leaders some insight into pricing. 

We are also hoping to do more regional breakdowns by rate, utilization, margin, leverage, etc.; another area in which we receive many requests.  Of course, the main focus of the survey will remain the law firm business model and the key profit drivers that affect per-partner income.

The survey will be broken down into two main parts:  the first part requires financial data and will take some time to assemble since there will be questions regarding 2007 year end numbers (such as standard blended rate by equity partners, non-equity partners and associates, and paralegals).  We will be conducting this part by telephone to help respondents with any questions.  We hope this will also reduce the possibility of invalid responses.  There have been several instances of firms having their responses disqualified due to inaccurate numbers after we were unsuccessful in our attempts to contact them to correct the responses.  We believe the best time to validate responses is at the time of submission and hope the telephonic interview process will help in this regard.

The second part will be for managing partners/shareholders/directors/etc.  Because this part doesn't require financial data (and thus shouldn't require assistance to complete accurately), it will be offered as an online questionnaire to encourage participation by managing partners.

The survey is geared to mid-sized firms.  For us, that means firms from 5 to 100 fee earners (which includes partners, associates, paralegals and others who bill clients for their work).  Although we hope to broaden the scope of the survey in the future, this year we are only accepting submissions from firms in the United States.

All respondents who complete the survey will receive a complimentary copy of our 2007 Law Firm Economic Survey and 50% off the price of the 2008 Survey.  The price has not changed and is still $495, so the value for participating is approximately $750.  The cost of the survey at $495 is among the lowest (if not the lowest) in the industry.  Further, firms who also complete the Managing Partner section of the survey will be offered a summary benchmark comparison of their firm against other respondents.  The benchmarking comparison is valued at over $1,200. 

Due to the time it takes to compile the data and prepare the survey for release (which we hope will be mid-summer), we are only accepting submissions for a two month period and may stop accepting submissions at any time after we reach our target of 375 respondents.  If you would like to participate in the 2008 Law Firm Economic Survey, please email me by clicking here and fill out the email request.

Related posts

• Law Firm Economic Survey
• The Case Against Income Partners
• Size Does Not Have to Determine Law Firm Partner Income
• Six Basic Law Firm Metrics
• Midsized Firms Have Available Capacity and a Pricing Advantage

 

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 realization.

Realization is a word with many meanings. Depending on what you want to see, it could mean the percentage of what was billed from what was worked (billing realization), the percentage of what was collected from what was billed (collection realization), or the percentage of what was collected from what was worked at standard rates. Further, you can look at realization on the basis of standard rate or negotiated rate (standard rate realization). This article will take a look at billing, collection, and overall realization from a performance measurement perspective. For some previous posts on realization, please read What Is Realization?, Measuring Law Firm Collection Realization, Collection Realization In The Law Firm, Law Firm Standard Rate Realization, and Role of Realization in the Law Practice Business Model.

Why is it important to track realization? The answer is efficiency. How efficient are you in converting work to cash? Each percentage point lost represents money out of the pocket of the firm. Firms that don't track realization will only find success by accident. Tracking realization at every step in the process will help your firm become more efficient and thus more profitable.

Sometimes referred to as "accrual" realization, billing realization looks at what work you performed at your standard rate and compares it to what you bill. Your standard rate is the rate you would charge a new client before any negotiated discounts. Some only want to look at negotiated or actual rate that you are charging to a client and that is fine, but you should also look at what percentage you are billing based on your standard or, as I call it, your "aspirational" rate. That way you can measure the difference between what you should be receiving based on what you believe you are worth and what you are actually getting.

Let's say your standard rate is $250 per hour. For client ABC, Inc. you and your associate perform 5 hours of quality, best in-industry work on the DEF matter. Because ABC gives you 200 matters per year as part of the guaranteed 20% of their workload for your region, you have provided them a nice 30% discount on the rate. $175 x 5 hours gives you $875 of billable work. However, once you see the pre-bill, you notice that 2.5 hours was spent by your associate "reviewing draft of status letter". You aren't going to make your client pay 2.5 hours for this, so you write it down to .5, reducing the bill by $350. Your bill the client for $525.

What is your billing realization? Based on your standard rate, you would have charged $1,250. This is your standard value for the work performed. There is a $725 loss from the negotiated rate and write down. Your billing realization is determined by dividing your billed amount, $525, by the standard value, $1,250. Your billing realization based on standard rates is therefore 42%. If you based it on your negotiated rate, your realization is $525 divided by $875, or 60%. Either way it's money lost due to inefficiency.

Ok, so you have billed $525. The invoice reaches your client, they notice a charge for .2 hours with a narrative "Telephone call with Ed regarding his paternity test - advised he should start saving for child support." Since the matter for client ABC, Inc. was related to a breach of contract claim, they requested that the time related to the erroneous entry be taken off the bill. You adjust the bill $35 and $495 is promptly paid. Your collection realization is 94%, another hit on your profits due to a lack of attention to reviewing the bill; ie, inefficiency.

Overall realization based on standard rate would be $495 divided by $1,250, or 40%. Overall realization using your negotiated rate is $495 divided by $875 or 57%. You won't make a living with these numbers. However, does any of the above (except maybe the reason for the post-bill adjustment) look that out of the ordinary? The only difference is that I am looking at realization at a per invoice level rather than a global level.

According to the 2007 Law Firm Economic Survey from LexisNexis, billing realization has a relationship to increased partner income while collection realization doesn't. Though overall realization is preferred, tracking billing realization appears to have the most impact on revenue. The charts below illustrate this:

The first graph represents cash basis, or collection realization. It is split up by quartile, the first quartile representing the best performing firms in terms of per partner income and the 4th quartile representing firms with the lowest per partner income. Note that there is no link between cash basis realization and per partner income. In fact, those in the 3rd quartile had the best collection realization, while the best performing firms in the 1st quartile were over 3 percentage points less. In the second graph, which represents billing or accrual realization, there is a clear correlation between the realization percentages and per partner income, regardless of whether you compare based on standard rates or negotiated rates.

Ultimately, the best practice would be to track overall realization based on your standard rate. However, the above provides some insight into where most of the money is being lost. It appears that if you can get control over pre-bill adjustments, your revenue will increase as will per partner income.

Ways to increase realization:

• Don't negotiate your standard rate away without volume guarantees.
• Pay attention to mark downs. If they must happen, make attorneys note a reason. If it is correctable, correct it so you can decrease mark downs.
• Bill. WIP is inventory and loses value every day it sits on the shelves (your desk).
• Don't wait months for a client to call and try to negotiate down their bill. Stay on top of receivables.
• Be efficient in how you work, how to bill and how you collect. Modify your processes to the extent you already have them. Develop a process to the extent you don't. Measure your performance and prepare to adjust if your process isn't yielding the results you desire.

Along with other key profit drivers, realization is something you should track regularly. Utilizing technology will help you achieve your goals. Tools such as Juris® Active Information can alert users when their realization goes below their desired percentage. Benchmarking tools such as Lexis® Insight can compare your realization numbers to your peers. Measure against your own goals and the performance of your peers to gain insight as you how your firm performs against others in the marketplace.

There's no reason law firms can't earn more even in a rescessionary economic cycle - unless they don't measure performance. Don't leave the financial state of your firm to chance. Measure your performance.

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.

Related posts

• Law Firm Business Model - Measuring Rate
• Law Firm Business Model: Margin
• Law Firm Business Model - Leverage
• Law Firm Financial Management-Getting it Right!
• RULES: Another Path to Law Firm Success

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.

 

Related posts

• Law Firm Business Model: Margin
• 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 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 margin.

Margin is partners' profits divided by firm revenues. It is the percentage of revenue left after all operating expenses have been paid (not including partner salaries and distributions). For previous posts on margin, look here, here, here, here, and here.

There's no secret to increasing margin. Do a good job, be fair to clients, focus on client development, bill what you are worth, never devalue your time, and make sure costs rise proportionately to revenue. You don't increase margin over the long term by cutting costs. Reducing expenses is either done to correct a past mistake in investment or to replace lost revenues. Neither are positive causes. If you want to grow, you have to spend.

The point is made in the 2007 Law Firm Economic Survey from LexisNexis as well. The firms who had the highest per partner income spent the most. The firms with the highest margins spent the most.

The firms with the highest per partner income are represented in the Q1 column. The operating margin is at nearly 51% and their expenses per head are nearly $100,000. Compare that to the lowest performing firms. In the Q4 column, margin is a paltry 29% but they saved money - only $84,000 per head cost. You can't grow with a constrictive operating budget. Note that both the best performing and worst performing firms also spent a nearly identical percentage of their budgets on technology. This could mean that technology isn't being utilized properly in the poor performing firms (due no doubt to a lack of services if experience tells me anything) or that poor performing firms are attempting to utilize technology to manage their practice. I am encouraged to think the latter and am curious as to whether those firms are improving their practice as a result. There are so many variables to successful implementation of a process, but looking at these firms in 5 years might be a good follow up.

 

The way to improve margins may be different for each firm depending on where they start, but there are still two constants: cutting costs do not equate to long-term increases in per partner income and measurement improves results. With any action geared to improve the financial performance of your firm, you must measure it and adjust when you get off track.

 

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.

Related posts

• Law Firm Business Model - Leverage
• Law Firm Business Model - Measuring Rate
• Law Firm Business Model - Realization
• Measurement Improves Law Firm Performance
• What Margin Should Your Law Firm Generate?

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 rate.

For a primer, look at some prior posts related to rate here, here, here, here, and here. The importance of tracking rate shouldn't surprise anyone. However, I run into firm after firm who either don't increase rates annually or don't track effective rate. How can you improve performance if you don't measure it?

Source: Timothy McMahon (http://www.inflationdata.com)

The above chart shows the trend in inflation since 1990. Failure to increase rates annually at the rate of inflation during the 1990's wouldn't have as much of an effect on profits considering the economic boom the US experienced along with low inflation. That changed in 2002 and there has been a steady increase in inflation for the past 6 years. In fact, as of December, 2007, the consumer price index (which includes the price for food and oil) was at 4%. If you are not increasing your rate at least by the percentage of inflation, you are working for less money every year. It isn't known where inflation will be at the end of this year, and some are forecasting that this year will see some lower inflation, but the point isn't to predict lower profits when inflation is higher or higher profits when inflation is lower - it is to keep up with the rate of inflation and be certain your rate increases take it into consideration so that you are immune to the index altogether.

 

Inflation is a starting point - other factors such as relative expertise in a given area of law can also factor into rate. In your retention agreements, you can provide cost predictability to your clients by treating it like one would a long-term lease. You factor price increases into the agreement so that they know the percentage increase each year. In volatile times (such as the last few years), it may be better to treat it more like a mortage, setting a range of increase that won't go beyond a certain ceiling. Then annual increases can meet margin goals as well as inflation.

 

Measure the effective blended rate consistently so that you know if the rate is going up and down throughout the year. Why is this important? Assuming that your firm has established rate goals for the year, the blended rate (the combined average of all fee earners' rates) should be known. If the rate is decreasing, then something is wrong. The most likely culprit is pre-bill or post-bill adjustments. If your attorneys are devaluing their work, there needs to be a reason - otherwise, you will be sending a signal to the client that you are over charging them and adjusting to make it more fair. This is not the way to make it easier to raise rates in the future. Further, if you are trying to meet a financial objective, write downs and mark offs go directly to the bottom line and put you behind in reaching your financial goals.

 

The effective rate is calculated after the invoice is paid. It gives you the actual value of your services. In the report below, productivity, realization, and rate are tracked. The image below it is a blow up of the rate section of the report. In it you can see the value of the hours worked at your standard rate, your actual or negotiated rate, the billed rate after mark down but before invoice discounts, the billed rate after discounts, and the collected rate after post-bill adjustments. It is broken down both by both worked hours and billed hours.

 

In the above, you can instantly see that the time keeper is writing up his negotiated rate at pre-bill edit to conform with his desired standard rate. One way you achieve this (ethically) is by the use of firm-wide standards for the cost of a task. You must determine the time it takes generally to do the task and then price it accordingly. If you have efficient attorneys that can do the task in less time than the standard, he/she may write up the bill to conform (likewise, if it takes longer, you must write it down). This way an efficient attorney may mark up his time and thus increase his effective rate. For those who advocate value billing, here it is at work. The better value goes to either the efficient attorney or the client of the inefficient attorney. Tracking effective blended rate regularly will allow you to determine whether your attorneys are being efficient in their processes and if they are on track to reach the financial goals or not. If they are not, you can act on it well before it becomes an uncorrectable problem.

At the same time, the above time keeper may be increasing his rate unethically, which may lead to undesirable consequences (firm reputation as well as ethical violations may be the result). Without regular reporting on the above, you won't have the information to know which is occurring.

Price increase is one factor to consider in increasing effective blended rate. It isn't the only factor. Many firms, especially those who work in corporate defense litigation, have traded high rates for volume. In practice areas where there is not a lot of price flexibility and the rate is usually heavily discounted to get the business, the key is to have an efficient workflow process and be very wary of mark downs. In some firms, the rate can absorb an inefficient operation. In corporate defense, you may not have that luxury. On top of that, more and more corporate clients are levying restrictive billing guidelines that can seriously affect effective rate. Not only can non-compliance with client billing guidelines delay payment, it can lead to nonpayment of certain tasks altogether.

Improving workflow efficiency is the easiest way to increase effective rate. However, expectation of reciprocity from a client who expects you to provide quality service at a reduced rate wouldn't hurt. Why is it that a client can expect you to lower rate for their volume when you are not guaranteed any volume from them? In my opinion, not only would I work to increase rate, I would tie the frequency and level of the increase on the volume the client provides. If the client is willing to guarantee a certain percentage of their work for a given year, I would be more willing to hold rates steady or only increase them by the annual rate of inflation. Don't be afraid to treat your corporate clients like a corporation. They are treating you like a business. Although restrictive, billing guidelines provide a measure of cost certainty by the tracking of costs associated with a task. They know what it costs for you to do your work. You better know it too - and make sure you are making a profit from the work you do.

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.

Related posts

• Law Firm Business Model: Margin
• Law Firm Business Model - Realization
• Law Firm Business Model - Leverage
• RULES: Another Path to Law Firm Success
• Law Firm Growth Prospects - 2005 Survey Results

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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Survey after survey discloses that only about 20 percent of midsized law firms engage in a formal planning process.  Yet, the evidence is clear that those that do have a process outperform those that don’t.  If your firm is one of the 80 percent without a formal planning process, you still need to plan—to think about the business of the law firm and into what and how do you want the law firm to change.

 

I previously posted a step-by-step quide for structured strategic planning as a team, but in this post, let’s take a simpler approach—a “one-person planner” approach.  How do you proceed as one individual when thinking about the business of the law firm? Start by taking an inventory—what is the nature of the business today and then proceed to what you want it to be and what is required to get there:

 

• What do our clients have in common (who are they)?

• What do our clients think of us?

• Who are our Partners- professional strengths, people and team skills, business strengths, marketing strengths, aspirations, traits, ages, satisfaction with income level, satisfaction with status quo, retirement goals?

• What do our other lawyers have in common (who are they); are they the right people; do we have the right number; are we fully utilzing them; are we training and developing them as we should?

• How do we stack up financially—per-partner income, rates, leverage, realization, margin?

• How are we growing our business; where does our new business come from?

• What is good and not good about our facilities?

• What is good and not good about our administrative team?

• What is good and not good about our systems and equipment?

• Who are our competitors, if any, that really matter?

• What are we really good at?

• What do clients ask of us that we are not good at?

• What are our biggest threats, if any, that really matter?

• What are our best opportunities?

• What is the firm’s value proposition—what elevator response would we give to someone who asks, “Tell me about your firm”?

• Are you satisfied with who and what your firm is? If not, what do you want it to be?

• If you are not satisfied, what do you want your value proposition to be—what elevator response would you like to give?

• What is keeping you from being what you want to be?

• Make a list—what has to change to get where you want to go?

• Go back over your list and reshape it into a big picture.

• The vision: This is who we are and want to remain or this is who we want to be.

• What are the three to five main things that will determine the success of that vision?

• What strategies are we going to rely on to achieve those main things?

  • What tactics or programs will we implement to support the strategies and who is going to be responsible for what?

  • How are we going to measure and report progress?

  • How are those responsible going to be held accountable for their delegated role?

 

Now here is the caveat.  Now you have to sell your plan. A one-person planning team can only take the progress so far.  You need a consensus for a plan to work. Everyone doesn’t have to agree with every aspect, but they must agree to the destination and the road, the key strategies, for getting there.

 

I call that consensus “getting on I65 North”.  The message I65 North conveys is that we are going north and we are going on this specified road.  You can travel at your own speed as long as you are not endangering other travelers or impeding their progress.  But you can’t go South, East, or West.  If you want to go somewhere else, there are exits along the way.

 

The truth be told, the easy way to sell your plan is to move to the next level and repeat the process as a team.   You’ve gone through the process and, having done so, you are in a position to facilitate the planning process.  New light bulbs may go off during the process, but the team is likely to wind up with a plan very similar to the one you scoped out initially. Only this time, they have ownership.

 

When you plan as a team, you may want to use the strategic planning guide from a prior post or you may feel more comfortable initially by sticking to a modified version of the above one-person planner approach for now.

 

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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In responding to a question, David Maister wrote the following:

 

“Ultimately, clients care about quality, efficiency and service - continuity is just a short-hand rule-of-thumb to try to get to these things. If you can be more thoughtful about how you achieve these things, they will give you more leeway in pursuing your other goals and won't insist on always seeing the same faces. And, with more thoughtful staffing, you'll be able to improve leverage, profits, learning and morale.”

 

The work one gets determines the future of the individual attorney.  Give them limited exposure, the same old stuff or the same clients year after year, and you will neglect the full opportunity to enhance the value and potential of the attorney. You are likely to lose them to someone who they think is more concerned about their professional development.  It is over the professional development issue that most associates switch firms.

 

The problem appears to be a general lack of centralized schedule management in midrange law firms.  Someone other than each individual partner needs to manage firm-wide scheduling. An alternative is needed to the frequently seen model where work is doled out by partners to “their associates” or “their favorite associates.” There has to be a counterweight to the easy and expedient “continuity” method that leaves associates stuck working with the same partner, same client, and/or on the same style matter.

 

For an enterprise whose factory floor is composed of talented people rather than machines, it is surprising that more technology is not available and used for managing the maintenance (professional development) and scheduling of the firm’s production resources (its professional talent).  This is one of the areas of future product development that the Juris team has been considering. Technology is one thing; having a culture that makes scheduling a strategic issue must come first.  How do you have the best people and the best future leaders without making their development a priority?  How can you do that if scheduling is not a key tactic in that pursuit? 

 

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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While we usually think of leverage in terms of the associate-to-partner ratio, partners can leverage their effectiveness through non-lawyer talent as well. Professional managers trained in various disciplines not only bring expertise and experience to bear for the benefit of the firm, but they also free the lawyers to practice law.

 

There is a clear correlation between high partner income and the existence of non-lawyer management talent in the firm. That was one of the findings of the Law Firm Economic Survey conducted by Juris, Inc. Firms in the first and second quartiles of per-partner income had a significantly greater incidence of senior level administrative and financial managers. They were also more likely to have human resources and marketing managers.

 

While it is evident that bigger firms had a greater likelihood of employing non-lawyer managers, perhaps investing in those resources helped them achieve that larger size. The Juris study and other studies do indeed confirm that there is a positive material correlation between success and non-lawyer firm management.  A Brand Research Company study indicated that the number one factor that separated success from failure among law firms was the presence of non-lawyer C-level executives like a COO, CMO, and CIO empowered with decision-making authority in their areas.

 

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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I need your help as a reader of morepartnerincome.com.  A reader sent me the following e-mail:

"I just re-read Why Law Partners Hoard Work? and I wonder if you have clients who have implemented this type of system, and exactly what kind of weight they attribute to each category mentioned, and exactly how this approach has been applied in practice, and with what success.  I am particularly interested in the idea of limiting origination to 18 months, and substituting a measure of associate work supervised."

 

If you are among those firms who have taken steps to fix your compensation plan, let me know by adding a comment or, if you prefer to remain publicly anonymous, send me an e-mail at morepartnerincome@juris.com and I will put you in touch with the above inquiring partner.

 

Why do compensation plans need to be fixed?  Most midsized law firms stuck in a lower per-partner income box are there due to their existing compensation plan.  Here is the dilemma:

 

·         Partners hoard work rather than delegate because they make more money by doing the work themselves.

·         The law firm underutilizes their expensive income-producing assets, associates, by 25-30 percent.

·         The law firm doesn’t have enough associates to create the leverage needed for top per-partner income performance.

·         Because partners are “doing the work,” they are not bringing in sufficient business to use the associates they have or to build leverage by adding more.

·         Because partners are “doing the work,” they don’t take the time to mentor associates in order to increase their capability to handle work independently.

The ABA Law Practice Management Section has just published Jeffrey L. Nischwitz’s new book Think Again!: Innovative Approaches to the Business of Law. In it he details the destructive impact of the “every person for himself or herself” mentality of the typical law firm business plan.

 

·         “Eat what you kill” plans fail to create or nurture loyalty. Attorneys quickly learn that their success depends on their individual efforts and results, not the firm’s.  They are “hired gun slingers” who are inclined to “sell their gun” to the highest bidder.  The best people leave.

·         Attorneys are reluctant to follow instructions unless those instruction best fit with the compensation system.

·         There is a lack of team thinking and support where the biggest victims are cross-selling and client service. Attorneys “actually take affirmative steps to keep other partners away from ‘their clients’” with devastating impact on income.

·         Lifetime origination credit isolates clients from effective development and “to the financial detriment of everyone in the firm, most of the work never comes in the door.”

·         The “once my client, always my client” attitude works as an effective bar against any cooperative marketing and business development efforts.

·         Even worse are plans that give a single partner credit for establishing a referral source relationship where all credit for referred business from that source is credit to the initial originator. The protected source becomes a wasting asset, assuring “that the firm will consistently and repeatedly under perform, with countless opportunities being left on the table and likely picked up by other firms.”

·         As for mentoring, Nischwitz reports that he repeatedly hears