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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Last week I had the pleasure of speaking to a group of more than 50 managing partners and their administrators on the subject of law firm economics. The event was the annual managing partner luncheon held by the Middle Tennessee Chapter of the ALA. The timing was appropriate because the current Juris Law Firm Economic Survey is now open for participation. Survey materials have been mailed to over 2500 midrange-size law firms throughout the U.S. Law firms can also participate by going to http://www.jurisinsight.com/2006survey. Links to the survey are also available on www.Juris.com and www.morepartnerincome.com.

The Juris economic survey, one of the largest in the legal community, is unique in that it targets midrange-sized law firms, particularly those with 10 to 150 attorneys. The 2005 survey disclosed that partners in the top 25 percent earn twice the income of the next quartile and more than seven times the per-partner income of the lowest 25 percent. We expect this year’s survey to provide fresh insight into the economic state of these law firms and to shed more light on the behavioral differences that distinguish one law firm from another when it comes to the income the partners enjoy.The survey now open for participation covers financial results for the year 2006 as well as the outlook for 2007. Firms that participate in the survey receive the published results and accompanying analysis without charge. Other firms will be able to purchase the survey online from a number of sources including Juris.com and morepartnerincome.com.

The 2005 survey identified ten observations about midrange firms that influence law firm performance and partner income:

Partners bill more than associates

Less than optimal associate utilization impairs partner income

Realization is not a key differentiator for partner income

Top performing firms excel across all key performance indicators

Firm size (i.e. larger) is not a ticket to higher partner income

The negative impact or sensitivity to partner income of underperformance on key profit drivers is extremely significant

Top performing firms spend more

All firms can increase income through faster billing and collecting

Mid-sized firms do not invest in strategic planning and have an opportunity to improve performance by doing so

Law firms believe that they will continue to have pricing power

The 2005 survey results drove home a clear message. The top performing 25 percent of law firms, those whose partners earned twice as much as the next best performing group, paid attention to the numbers. They planned; they set goals; they measured performance; and they held people accountable.

I still have a few copies of the 2005 survey report. While the numbers are now getting stale, the suggestions and recommendations contained in the 55-page publication are still valid and valuable. Send me an e-mail at morepartnerincome@juris.com and, while supplies last, I will send you a complimentary copy of the 2005 report along with a hard copy of the 2006 survey forms. Complete the 2006 forms. Mail or fax them to Juris, Inc. or input your results online by going to http://www.jurisinsight.com/2006survey. Don’t miss this important and valuable opportunity to compare your law firm’s metrics with your peers and to gain new insights that can increase your firm’s per-partner income.

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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Stephen Collins, President of Juris, Inc. and I paired up to present preliminary results of the Juris® Annual Survey of Law Firm Economics during the ALM’s June 8 Los Angeles business forum for law firms. The information presented was preliminary and unaudited. The audit survey results should be available in a few weeks.

If one looks at a law firm as a business for providing legal services, survey results imply that the most important role for their partner owners is to bring in business and delegate the work to non-partner legal professionals. The law firm that places partner individual productivity as a higher priority limits the long term income of all partner owners.

Consider the chart below:

Mid-sized law firms in the top 20% based on per-partner income had 1.7 associates to every partner. Those at the bottom in terms of partner income had only 1 associate for every two partners. The chart clearly reflects the dominate role of leverage in determining per partner income. It is worth pointing out that even the best (the top performing 20% of mid-sized law firms) had only a 1.7 to 1 ratio of associates to partners versus the 2.7 to 1 enjoyed by AmLaw 200 law firms. That difference goes a long way to explain why AmLaw 200 partner incomes are materially higher than those enjoyed by the best of the mid-size firms.

Let me add that leverage does not depend on the billable hour nor does it require exploitation of the young. It is simple economics. For a law firm, people are required to generate work. Work generates revenue regardless of how that work is priced. Likewise, the more revenue producers per partner, the more income partners can enjoy.

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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Hard work and long hours limit the income of law firm partners. How can that be? While it may appear counterintuitive, it is really simple. The owners of a service business make more money when they can leverage off of the work of others. In order to do that, you have to have the work for them to do. You have to give them the work to do. And, you have to find, hire, and train them.

A new survey of mid-sized law firms is confirming what we frequently found when working with individual midsized law firms. Partners are logging more billable hours than their associates. Law firm partners are hoarding work rather than handing it off to others. Rather than bringing in new business or training others, they are piling up their own billable hours.

It gets worse. Not only are many mid-sized firms not fully utilizing their existing associates, but partners are not investing enough time in business development or recruiting and mentoring talent. Where AmLaw 200 firms have about three associates for every partner, midsized firms average only a 1 -1 ratio.

The result is what you would expect. Midsized firm partners make less income than their counterparts in larger law firms.

If working long and hard hours actually reduces income, why do partners do it? Why do they hoard the work?

Why shouldn’t they? If a partner’s distribution is based largely on their individual production, what else would one expect?

It is time to rethink partner compensation in the midsized firm. Consider rewarding partners for nothing more than a hygienic level of production. Additional rewards would then come from bringing in new business and handing off work to others. Consider the merits of a compensation system that includes the following four elements:

1. Personal production up to a maximum hygienic level

2. Bringing in new business (based on fee revenue for the initial eighteen-month period)

3. Associate billings on clients’ work under the partner’s control

4. A subjective element based on relative performance in such categories as:

• Recruiting
• Mentoring
• Associate survey
• Administrative staff survey
• Public relations
• Playing by the rules
• Client satisfaction surveys
• Etc.

Why limit the new business reward to eighteen months? The objective is to keep generating new business, not to compensate for revenue the firm already has. Compensation for retaining existing business is earned by performing as the control partner responsible for work supervision and the client relationship. A fifth element can be added, if needed, to encourage a partner to hand off control to a new or different partner. Similar to origination, the partner handing off work could get origination equivalent credit for the first 12 to 18 months following hand off.

By limiting earnings for personal production to a “hygienic” level, partners will no longer be incensed to pile up billable hours at the expense of making rain and devloping the skills of their associates. The short eighteen-month origination credit period keeps the pressure on “new” business development rather than continuing compensation for prior successes. Origination credit under the above approach is never handed off. Once someone has been paid for new business, it becomes property of the house. By basing compensation on associates' fees, the emphasis is shifted from personal production to developing and using the professional skills of associates.

The firm gets a bonus out of the new approach. The firm gains a farm team out of which the future partners and leaders of the firm will come.

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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Yesterday’s post was a reminder that when hiring new talent, the firm needed to look for candidates who have the personality and fire in their belly to bring new business to the law firm. While those traits are needed by the law firm, it turns out that they are not that important in the minds of your existing clients. Perhaps a better way to say it is that the client is looking for more than just a personality.

Most mid-sized law firms are in the B2B business. B2B, of course, is the new age shorthand for an enterprise (a business) that provides services or sells products to other businesses. Law firms are viewed as businesses by their business customers.

The April 2006 Harvard Business Review reports that a Zurich, Switzerland team carried out extensive research to determine the difference between what customers wanted in a company's representative and what the providers looked for while recruiting new team members.

Customers placed considerable value on whether the provider’s representative understood the customer’s business and industry; whereas, industry knowledge was near the bottom of the qualifications that providers looked for when recruiting.

Philip Kreindler and Copal Rajguru with Infoteam Sales Process Consulting in Zurich said, "Our survey suggests that vendors would be wise to put industry and subject matter expertise ahead of social skills when it comes to recruitment." The point was made that instead of learning industry subject matter on the job, the ideal candidate brings that knowledge with them.

That characteristic is usually available to the law firm only through lateral hires. But in that regard, it is clear that knowledge of industries targeted by a law firm should be high on the list of qualifications when searching for a lateral prospect.

The question this raises is: "Does industry and customer knowledge trump relationship building skills?" I’m not sure these are separate skills. Relationship building requires one to have an honest and sincere interest in the other party. To acquire customer and industry knowledge requires that interest, and the more you know, the more interested you become in contributing to both.

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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Hildebrandt International and the Citigroup Private Bank Law Firm Group released a 2006 Client Advisory highlighting the trends they perceived in the law firm community in 2005 and that they believe will impact the market in 2006.

The bottom line is that 2005 was a financially solid year for law firms. Overall levels of revenue and profits in 2005 increased substantially from 2004, although the Advisory notes that the growth was below the compound 10 percent annual growth rate increases for the preceding five years. The Advisory notes that there also appeared to be a noticeable up tick in activity in the second half of the year, a trend toward an even better 2006.

The Advisory delivered an unusual message for mid-sized firm performance. The Advisory indicated that mid-sized firms were doing well financially but issued a word of caution about an apparent downturn in partner morale, internal trust and teamwork. Noting that most firm dissolutions are generally not financially motivated, the Advisory suggested that some firms with solid financial performance may be more fragile than they appear.

The reports states: “…we believe that it is a more important point than ever given the current highly competitive legal environment –is that law firm leaders cannot afford to assume that good financial performance is all that matters. Social scientists have known for some time that motivating people isn’t primarily about money. Rather, it’s about vision and purpose, giving people the opportunity to do interesting work in an environment that supports and encourages them and allows them to feel a sense of real accomplishment. It is, in other words, about the ‘people stuff.’ Law firm leaders – even leaders of economically successful firms – ignore these realities at their peril.”

The report notes some of the challenges faced by mid-sized firms especially related to size including globalization, competition for talent and the lack of critical mass. The Advisory falls far short of writing off the prospects for mid-sized firms. The report states, “This is not to suggest that mid-sized firms cannot be profitable or successful.” Some of them rank among the best and most profitable firms in the United States according to Hildebrandt. The Advisory continues: “In our experience, the mid-sized firms that have been most successful are those that have focused strategically on specific practices or categories of clients where they could be most economically competitive, even against large national law firms. For some, that has meant focusing on mid-sized companies or startup ventures; for others, it has involved developing niche specialties or practices requiring special “local” knowledge. For still others, strategic focus has meant ‘going regional’ – i.e., expanding (usually through merger or acquisition) to serve an entire geographic market. Of the 49 completed law firm mergers last year, 23 (or some 47 percent) were between firms with primary offices located in the same or adjoining states. Likewise, of the 66 branch offices opened by U.S. firms in 2005, there were 28 (or some 42 percent) opened in the same state as the firm’s primary office or in an adjoining state. The point is that, while size matters to some extent, it need not be a deciding factor in a firm’s success. Far more important is the issue of strategic focus.”

The complete report is available online at Hildebrandt International.

 

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've spent several days at home recovering from a cold or whatever is going around, which means I have been catching up on some reading. I am always surprised by the passion of those who want to declare that mid-sized law firms are a dying breed mortally wounded by inadequate management. Saying it often and even with passion doesn’t make it so.

The Lawyer Statistical Report by the American Bar Association was published in 2004 and presents data up to the year 2000. The first important piece of information is that there were only 356 firms with more than 100 attorneys. Comparatively, there are 4962 firms with 20 or more attorneys. That number is approximately unchanged from 1990, but grew significantly in the preceding ten years—from 2682 firms to the 2000 level of 4962. Likewise, the overall number of U.S. law firms also grew dramatically in the ten years of the eighties while in the nineties it has been relatively stable. Given the dramatic growth in the ten years prior to 1990, it is not surprising that there has been a settling down period. We have seen a small decrease (less than 5%) in the number of firms ranging in size from 30 to 100 attorneys. This group has been handy fodder for the mega firms pursuing an acquisition growth strategy.

From experience, I can tell you that acquisitions by the mega firms are invariably followed by the creation of several new breakaway firms. It is somewhat like the consolidation in the banking field that results in a surge of smaller, high-service banks rising from the consolidation dust.

Mid-sized law firms are doing pretty well. We would always like to help them do even better. But, they are already a financial success. It is unfortunate that tax laws discourage capital accumulation. This means that law firms have to pay their way as they go and have little reserve dry powder. But law firms are money machines. Why don’t law firms invest more in “management”? It is probably because they are doing pretty well as is, thank you.

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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A few days ago I posted an example of an overly worded rate increase letter mailed to clients of a mid-sized law firm. Following that post, I received an e-mail from one of my associates. She had asked two different law firms if they were affected by the recent wave of associate compensation increases in mega firms. One said, "Yes, we have already increased pay.” The other said, "What increases are you talking about?"

These events illustrate the mixed response of mid-sized law firms to mega firm actions and, particularly, to the issue of associate salaries. Even if there is little immediate connection for most mid-sized law firms with their distant mega firm cousins, sooner or later their actions trickle down. Certainly not dollar for dollar, but they clearly set a directional trend.

Given the continuing rise in Associate compensation ($75,000 to $145,000 depending on firm size and location), it is now more important than ever to set targets and measure performance in order to ensure that the firm’s investment will generate a profitable return.

Tax laws discourage accumulation of capital in law firms. All the talk of balanced life aside, law firms have to fund operations from current performance. Associates have to pay their way. That means setting targets for revenue production and holding new additions accountable.

Speaking of targets, if you haven't yet participated in the Law Firm Business Survey for the 2005 year, be sure to do so. By doing so, you will receive a copy of survey results. Those results include the performance benchmarks against which you can compare your own firm's results. When you know what others are doing, you know where you can make changes to increase per-partner income in your own firm.

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 love it when someone puts their finger on the overlooked obvious.

In commenting on Sullivan & Cromwell’s recent action increasing base salary of first-year associates to $145,000, Larry Bodine’s Professional Marketing Blog advises law firms to “Know what you're getting…”

Bodine writes “Here's my radical suggestion: Why not hire associates based on their potential to bring in new business? Give them a personality test to see if they have what it takes to become a rainmaker. Have the marketing director or marketing partner interview them to probe their inclination to develop business relationships and open new files.”

Most first-year associates going after the big bucks aren’t planning to stay put. They have plans other than sticking around to make partner. The majority of those with initial partner intentions wash out within five years. "Keepers" in mid-sized law firms must be able to bring business into the firm. They have to make rain to make partner. So why not first test to find out if they have a rainmaker’s personality? Tests are not foolproof, but they improve your odds.

Larry Bodine writes more extensively about the personality required to be a rainmaker in the Law Maketing Portal’s post Personality:Why 25% of Lawyers Can’t Sell.

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. © 2006 Juris, Inc.

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Some time ago I wrote a piece relating the importance of a law firm’s local target market for strategic planning. A short-term competitive advantage is required to achieve market dominance which, in turn, becomes the firm’s long term competitive advantage. Management experts including my favorite, the late Peter Drucker, would say become one of the two top three or get out of the business.

In today’s environment, a tightly drawn market is required for a mid-sized law firm to achieve and maintain market leadership or dominance. Expansive markets have too many players to develop business strategies or to achieve a competitive advantage. What makes this exciting and opportunistic is that you get to define the market and then go after it. That is the essence of strategic thinking and planning. Most mid-sized law firms will start with a geographic market limitation, either a metropolitan area or a regional area, then overlay additional limits on that target. For example, a firm targeting the Southeast might further focus on the timber rights for the lumber industry. Even that is not enough for the interloper who might zero in even more narrowly on environmental issues related to harvesting lumber under timber rights agreements. A firm focusing on entertainment might zero in on music and even a particular style such as gospel. Another firm might gain its reputation among songwriters in the Nashville, Tennessee, music industry.

Edward Wesemann, the author of Creating Dominance: Strategies for Law Firms, explains that a firm that establishes a level of dominance in even a small niche marketplace has an incredible advantage. A firm dominant in one area of practice is viewed as a boutique—the specialist for that particular segment of the market. Firms that have two or more dominated areas are viewed by the marketplace as dominant in all of their areas of practice. The dominated areas drive unrelated high value business to the firm.

Dominant firms get the best work and enjoy better fees. As Wesemann notes, once a firm acquires a market leader reputation, that reputation gains a life of its own. Dominance in anything is better than dominance in nothing. Of course, since you can define your target market, it makes sense to select one that is growing and values legal services. For that, you need to look into the future, considering social, economic, demographic, industrial, and other trends. What opportunities, for example, are offered by the aging population of the U.S. or other changes around us that are reshaping our world?

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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