ALM Research recently released the 2008 Law Firm Business Development Practices Survey, which targets two "tiers" of law firms:  those listed in the AmLaw 200, The Global 100, and the NLJ 250 (Tier 1) and those not listed (Tier 2).   Though the survey is mostly focused on large firms, the average number of attorneys for Tier 2 firms was 85, within the higher range of the mid-market. 

Business development is difficult to assess in mid-size firms simply because many don't track it.  However, firms do see the importance.  In the 2007 Law Firm Economic Survey by LexisNexis, 25% of respondents claimed business development was the best strategy to improving profitability, second only to increasing rates.  Likewise business development is one of the 5 highest rated factors for financial growth in the ALM survey.  The extent to which these activities are tracked and measured will determine the extent to which firms can gauge the effectiveness of their methods.

Some other key findings:

• More firms are dedicating resources to business development that are separated from a marketing role;
• Budgets for business development have increased over the past year;
• Around 50% of respondents employ client interviews and surveys (the highest rated business development activity among respondents);
• Just under 50% employ "client service teams" focused on clients who generate the most revenue;
• Over 50% receive some sort of sales training;
• Nearly a third of Tier 2 firms reported that they were "not sure" if revenues increased, decreased or remained flat in the past year.

The last finding listed is surprising.  If your firm is not tracking revenues, there is no way of knowing whether your firm is in trouble financially or not.  Further, you can't accurately forecast if you don't benchmark.   The importance of measuring performance can't be emphasized enough. 

The above is just part of the findings of the survey.  To purchase the survey, visit the ALM Research site by clicking here.

Related posts

• The Case Against Income Partners
• Reflections on the 2007 ALM Billing Rates & Practices Survey
• For Long Term Increases To Income, Partners Must Delegate Work
• The End of Generally Accepted Accounting Principles?
• Managing Partner Forum Attendees: Business Development Most Effective Way To Improve Profitability

Goals-based strategic planning takes a different tact than a "basic" strategic plan in that there is a singular focus by which the firm sets goals.  Focusing on financial goals is more manageable and attainable than the comprehensive strategic plan, but requires attention and accountability nonetheless.  Aspects of goals-based planning include:

1. Identifying key performance indicators that affect profitability
2. Developing goals for each indicator
3. Develop a budget based on the goals
4. Forecast earnings based on the budget
5. Measure and adjust

Identifying key performance indicators that affect profitability  - The key drivers to profit include leverage, rate, realization, productivity, margin and cash flow.  Firms may also want to include other indirect drivers such as client development (relationship building), "firm citizenship", etc. that may not have a direct impact on profitability, but are part of the core values that the firm holds.

Developing goals for each indicator - goals are particular to each fee earner but in total should reflect the financial targets for the equity partners.  Each goal should reflect the capabilities of the fee earner and the realities of the market.  For example, productivity targets may reasonably be set to 1,800 hours per year but setting the hourly billing rate at $350 may be unreasonable for a second year associate who works exclusively in insurance defense.  Set goals that are attainable.

Develop a budget based on the goals - Budgeting simply states your goals in a measurable way.  Fee earner budgets measure your productivity; client budgets measure your efficiency; expense budgets measure your spending.

Forecast earnings based on the budget - Forecasting models your budgets so that you can predict the results.  It isn't enough to just state goals. Forecasting allows you to see what the bottom line will be if you meet your goals.  If the bottom line isn't what you wanted, adjust the budgets until the forecast is agreeable.  Most businesses forecast annually with quarterly reviews.  During the quarterly review, the forecast can be adjusted based on the actuals.  If business is thriving, you can increase your forecast - if business is down, you can reduce the expectation set in your annual forecast.

Measure and adjust - like anything else you implement in the firm, you must measure performance and be willing to adjust if needed.

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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I have suggested utilizing a non-equity partnership tier as a way to reward attorneys who are not yet ready for firm ownership.  Jim Cotterman has made an argument against it.  In my assessment, non-equity partnership can be a tier to place attorneys who excel in some things, such as working files, but don't have the skills to bring in new clients or matters or don't have the requisite discipline to be a firm owner.  Cotterman, however argues that non-equity partner tiers can end up being dumping grounds for the mediocre.

Cotterman cites a May 2006 study, An Empirical Study of Single-tier Vs. Two-tier Partnerships in the AmLaw 200, by Professor William Henderson at the Indiana School of Law.  The study documents that average per equity partner income in single tiered partnerships are significantly higher than two-tiered partnership firms.  The study noted:

The higher profitability of single-tier firms appears to be a function of higher levels of prestige, which enable single-tier firms to (a) attract and retain a more lucrative client base, and (b) run a more rigorous promotion-to-partnership tournament in which associates work longer hours and are less secure in their futures with the firm. 

Cotterman does believe there are certain situations where establishing income partners could be a good idea, including the reasons I mention above.  How do you feel about this?  In the 2008 Law Firm Economic Survey, we are asking respondents if they have a non-equity partnership system in place.  With this information, we will be able to determine whether equity partners in two-tiered partnership firms make more or less than those in one-tier firms.  It will be interesting to see if our results, which focus on small and mid-size law firms, mimic or contrast the findings in the Amlaw 200.

We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

Related posts

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• For Long Term Increases To Income, Partners Must Delegate Work
• The End of Generally Accepted Accounting Principles?
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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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I received an email earlier this week from a reader who corrected an error I made when discussing the effects of inflation within the post How Law Firms Can Increase Income By $100k Per Partner In 1 Year.  Rather than re-working the example in the original post(where few would notice it), I decided to dedicate a post to the effects of inflation on your bottom line and clarify the point, which was not in error.  Considering the overwhelming negativity flowing through the minds of many regarding our current economy, a discussion on inflation's affect on profitability appears ripe anyway.

During the 1990's inflation increased an average of 3% per year.  In fact, many of us have become accustomed to using the standard of 3% when adjusting any cost by the rate of inflation.  From 2000-2006, inflation was even a little better, increasing on average of only 2.85% per year. 

 

Source:  www.inflationdata.com

In 2007, the average rate of inflation was still only 2.85%.  However, in the last 2 months of 2007, a trend began that is continuing this year.  From November, 2007 until January, 2008, inflation has exceeded 4%.  On March 14, the February inflation percentage will be released.  It will be interesting to see if this trend continues [MARCH 14 UPDATE:  Core inflation was unchanged in February - news that, while perhaps temporary, opens the door to another interest rate cut by the Federal Reserve.].  Regardless, January's inflation was highest in the month of January since 1991.

 

Source:  www.inflationdata.com

Inflation has actually has been moving up since 2000, except for an interruption after the impact of Hurricane Katrina caused inflation to first spike just after the storm, then drop to under 2% in late 2006.  It wasn't until late 2007 that rates returned to the 6 year trend, according to the below chart.

 

Source:  www.inflationdata.com

Whether inflation is going to stay at plus 4% in 2008 remains to be seen, but let's just consider the effect of inflation based on the average from 2000-2007 (2.85%).   In the following example, annual revenues are $1 million (for simplicity).  To determine the effect of inflation on your bottom line, the scenario I am using utilizes fixed margin percentages of 10%, 11%, 15%, 20%, 30%, 40% and 50%.  (Using these percentages alone make business owners of other industries indignant, as many can't imagine pulling margins of 50% - though the best performing law firms in the 2007 Law Firm Economic Survey were doing just that)  As well as factoring inflation, I also factor in a 6.5% increase in revenue (based on predicted rate increases from firms in the 2007 Survey).  Will this offset inflation?

Not hardly.  In fact, at low margins, inflation is deadly.  If margin is 10%, even with a rate increase of 6.5%, income purchase power is reduced by 22%.  Even at 15% margin, your purchase power is reduced 13%.  It is not hard to see how small businesses with low margins struggle to survive even moderate inflation.

With margins up to 40%, you are still losing money when revenue increases 6.5% and inflation is as low as 2.85%.    However, at least when margins are 40% you are close to offsetting inflation - so long as revenue increases more than double the rate of inflation.

The above model takes into consideration a rise of expenses that includes both inflation and the revenue increase.  The assumption is, as Parkinson's Second Law states, that "expenses rise to meet income".  When you increase revenue, it is likely due to an investment, whether that investment is additional staff, timekeepers, technology, pay increases, etc.  The numbers above change if you only apply inflation to expenses, but that would assume that you are not investing in the above to increase revenue.  One way to accomplish increased revenue without  additional cost is through increasing productivity, at least in the short term (for those who increase productivity will soon seek financial reward).

In the above, you can see the drastic difference taking "revenue cost" out of the equation.  If you can increase revenue without adding cost, inflation is suddenly no longer a threat - all you must do is keep up with the rate of inflation and inflation is abated.  In the above, you actually see a higher percentage increase with lower margin.  In any event, income across the board goes up.  The above, however, is accurate only in the short-term, as costs inevitably increase with revenue.

What can be concluded from this?

• Rate increases must be much higher than the rate of inflation to offset its effects (ie, rate alone isn't a path to increasing income);
• The higher your margin, the less inflation affects income;
• Higher productivity with higher rates can substantially increase income in the short term and minimize its effects in the long run.

For subscribers of the blog, I have attached a spreadsheet with both formulas for you to use to plug in your own numbers and forecast how inflation will affect your profits in both the short run (if you budget for higher revenue without additional cost - such as increasing productivity) and the long run.  To download, click here.  If you haven't already subscribed, registration is free.  Thanks to Joe Dwyer for his time and thoughts.

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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.

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A friend of mine practices in firm that specializes primarily in transactional work. Much of the work is billed flat fee but they still track their time so the firm can determine profitability. Recorded time is set against an attorney's budgeted hours for the year so that they are credited for their flat fee work. My friend lamented associates padding their worked hours for flat fee work so they make their budget numbers. In this case, padding hours doesn't affect clients since the fee is pre-set but it does affect reporting of profitability.

Aric Press, Editor-In-Chief of The American Lawyer, wrote in the December, 2007, In-House article that 2008 may well be the year when clients start to demand alternative fee arrangements:

One of the unintended consequences of electronic billing is that clients can now easily compute and compare the cost of tasks. Soon there may be other technological threats based on knowledge management that can convert once complex acts of lawyering into rather commoditized routines.

I have been pretty adamant in my defense of the billable hour. That doesn't mean that I am against alternative fee arrangements when the use of them will improve the efficiency of the firm and thus increase profits. Recording time, regardless of fee arrangement, is still a good idea. However, sometimes it just makes more sense to bill using fixed fees for certain tasks.

Why not take advantage of this and place an internal value on the task as well? You can do this by determining the time it takes to perform the task, then mark it up to the market price (perhaps based on the hourly rate times the time it should take to perform it). When a task is routine, standardization gives firms opportunities that can revolutionize a firm's business model. Not only will attorneys have a value based on their billable hour, but certain repetitive and reproducible tasks can be valued as well. Your firm will diversify its product offerings to clients, giving them more options for services and giving you more options to strengthen the client relationship. You could ostensibly set a price list for legal products - in effect competing with the emerging online forms market.

In the example of my friend's firm, creating a standard task that is reproducible and given a proper value reduces the inaccuracies in reporting due to "padding time" by associates trying to make their numbers. In the example of the firm whose client has already placed billing guidelines on a firm, this has the equal benefit of both providing cost certainty to the client and saving the attorney from repetitive time entry.

There is also the benefit to the general practice firm. The firm can market package transaction services at a set rate, and tack on billable hours beyond the scope of the repetitive (and priced) task. Sound a bit like value-billing?

How would this work? For transactional work, it would be as simple as setting a value upon a routine task, such as creating a will. For a simple will, attorneys will determine what the variables are, determine what it has cost in the past, agree upon an acceptable price based on market acceptance and variables, then price it.

In a litigation matter, it is no different. Many firms are already required to provide budgets based on tasks for the benefit of client cost allocation. Each task that the firm performs can be priced. Litigators can anticipate the course of the suit and determine a cost for the entire matter. There should be a value placed upon every legal task, whether it be writing a status letter, reviewing a file, etc. The price can take into consideration variance in time it takes for different attorneys to perform the task. That is up to the firm to decide.

By standardizing the value of certain tasks, it also opens another opportunity for building firm expertise: giving royalties to attorneys who create reproducible work product. Firms spend years building up forms. Forms are rarely created again - they are typically modified. Yet no one gets credit for creating the forms.

By giving an attorney a royalty for a form, you encourage expertise to be passed on to the rest of the firm. You can position attorneys who have a talent for researching and integrating current law into forms as work product creators and attorneys who are better at managing relationships and matters representing clients. Both have value. Both can be compensated based on the work they perform. Form writers would receive a percentage of the cost of the task as a royalty for a certain time period whenever their form is used. Just as you should place a time limit on origination credit, you should only provide royalties on forms for a certain time.

How can this be advantageous to the firm? Several ways:

• It encourages information sharing within the firm.
• It compensates those who provide value to others in the firm.
• It can further a strategy of increasing leverage by giving credit to partners while reducing their billable hours.
• It transfers the wealth of knowledge gained at the firm's expense back to the firm.
• It can aid the strategy of succession planning by providing a route to semi-retirement while ensuring that the firm maintain its areas of specialization.
• It allows partners to spend more time on what they excel in most: rainmakers focused on marketing efforts and strategic planning and grinders developing work product.
• It gives firms an opportunity to give associates responsibilities that will benefit the firm as well as the associate.

Of course, with any change in policy, there are uncertainties that have to be addressed. For example, what if another attorney within the firm finds a problematic provision in the form and proposes to change a few clauses? What if the attorney proposes an entirely new form? Although in theory it would be a good thing to have several different forms from which to choose, logistically it may make more sense for your firm to settle on a preferred form from which attorneys may receive a royalty. That along with determination of the royalty percentage is sure to provide lively discussion in the partner meeting.

Whatever direction your firm goes when applying new policies, it should conform with a universal requirement of periodic measurement and adjustment.

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Two of the wisest minds on the business of legal services, David Maister and Bruce MacEwen, recently posted items dealing with the ambiguities and paradoxes of capitalism.

Maister posted “Who or What is the Firm For?”, noting that the standard capitalist answer that a business is run for the shareholders doesn’t appear to be that cut-and-dry when one is talking about a law firm. In fact, I think Maister would say the question is unsettled or, as he put it, “confusing and ambiguous."

What sets a law firm apart from big corporations is that ownership and employment are commingled, but that is also true of small, closely held organizations that make up most of the business world. Here is the difference: law firm owners are not stakeholders in the “value” of the business. At the end of the day, partners are expected to walk away leaving the firm to the next generation. As firms take on a life of their own (beyond the productive life of their founder), firm leaders acquire an obligation to preserve the firm for the next generation. Doing so means “business as usual” on a continuing uninterrupted tract for the clients of the law firm. The preservation mission in this “walk away” ownership model pits generations against each other or leads to the kind of situation Maister observed:

“…….an immensely successful firm which has dramatically improved its profitability (among other accomplishments) in the past 5 years. The "moves" made by the firm did indeed impress this reader. But here's the kicker: the article pointed out that, since 2001, 37 percent of the partners (i.e. shareholders) had left the firm. Now how is one supposed to process that?”

MacEwen’s post on Adam Smith Esq., “The Paradox of Capitalism”, should make all law firm leaders sit up and take notice. You are at risk from the Darwinian creative destruction driven by entrepreneurship. We are talking about the competitive threat that goes beyond other law firms nibbling around your edges. It is the threat that entrepreneurs tapping new “means” will reinvent legal services or the segment of legal services in which you are engaged. Or to turn that threat around, it is the opportunity out of entrepreneurial drive, or desperation, that capitalism affords you. The paradox referenced by MacEwen is one described by the economist Joseph Schumpeter, who warned that societies benefiting from wealth accumulations through capitalism might begin to erect barriers to protect the entrenched from the next generation of capitalist destroyers.

As for the business or profession of legal services, the smell of change is all around us. The pressures of reforms abroad cannot be ignored. Law firms cannot forever ignore traditional concepts of ownership investment and value. New “means” of solving the wants and needs of legal service customers cannot go untapped. The Societies and Bars afford only limited and temporary protection. Some time, some day, some entrepreneur will accumulate massive wealth by eliminating the wealth and livelihood of entrenched players. The threat only grows for law firms as a whole as elements of change are ignored or resisted and more and more “new means” go untapped.

Law firm leaders must accept that change is constant. Resist at your peril. You either change up or the natural forces push you down. Like other businesses, you must look outside of your natural competitors for the risk that will replace you. You have to look outside of your natural competitors for the innovations through which you can reinvent your enterprise.

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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PEP as a measure of law firm financial performance has come under fire lately.  See the Adam Smith, Esq. post Is PEP the Proper Measure of Success?.  Profit per Partner is a perfectly legitimate measure of financial return to the owners of a law firm.  There are, however, those shortsighted firm leaders who would maximize PEP at the expense of long-term law firm success just as in the corporate world you can find some less-than-stellar CEOs who focus on earnings per share while damaging the long-term value of the business.

 

How should performance of a law firm be judged?  What attributes should management use as its steering points for long-term success?  For the answer, you don’t have to look far. Peter Drucker spelled out the eight areas in which organizations create value in the eyes of those to whom it is accountable.  The eight key result areas are:

1. Customer Satisfaction

2. Productivity

3. Innovation

4. Resources

5. Management Development and Performance

6. Employee Attitude and Performance

7. Public Responsibility

8. Profitability

 

The point is no single metric tells the whole story. The successful organization must address each of the eight areas through its objectives and control systems. It must set goals, measure performance, and hold people accountable in all eight areas.  Profit per Partner is just one measure.  It isn’t an inappropriate one. Like any other single metric, it can be inappropriately pursued.

 

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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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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