Becoming a lawyer can be a rewarding career choice as it allows you to serve others and help them through difficult times in their lives. However, as the owner of a law firm, it is important to remember that your law firm is a business, and thusly, profitability needs to be one of your key concerns. Ensuring that your law firm maximizes profitability will give you the resources that you need to best serve your clients, partners, and staff. Fortunately, there are simple steps that you can take to ensure efficiency and maximize profitability at your firm. Keep reading for a look at five ways to improve profitability in your legal firm.
Market Yourself Properly
How has your business’s growth been lately? Have you had a steady influx of clients, or has it seemed like things have tapered off? If you are struggling to find new clients, ineffective/insufficient marketing could be to blame. Marketing your law firm well is an essential component of ensuring your firm is profitable by helping you to gain more clients and increase your revenue.
The fact is that word of mouth is rarely enough to bring in the level of business you need to ensure profitability, so it is important that you take advantage of as many marketing channels as possible including social media, video advertisements, and print ads (such as in mailers, billboards, and newspaper ads). In order to help ensure you have the resources to market your firm properly without going overboard, you should aim to budget between 2.5-3.5% of your revenue for marketing.
Be Careful About Which Clients You Take On
Part of your marketing strategy should be ensuring that you are only taking on cases that you are confident you can win. Winnable cases not only increase profitability, but they help you maintain your brand’s reputation, which can make it easier to bring in new clients. You should then be careful when assessing potential clients to ensure that you only take on cases that you are confident will be profitable.
You should also look at your current client load and determine if there are any clients that you should consider eliminating. The fact is that some clients can cause a lot of headaches and overcharges, which can harm profitability. Take time to determine if you have any clients who are hurting your firm’s profitability and end your engagement with them.
Know Your Utilization Rate
A business’s utilization rate is a number that defines how well they are using available resources. If a law firm charges hourly, the utilization rate helps determine how many of your staff’s total available hours each day are billable hours. Knowing this rate can help you better understand how you are using your time, where you can adjust increase billable hours, and what your pricing should be in order to ensure you can improve profitability in your law firm based on how many hours you can bill a day. While it is easy to become obsessed with your utilization rate and trying to maximize billable hours, knowing this number is still important in helping ensure that you are aware of mistakes your firm is making, and places you are overspending, that could be hurting profitability.
Reduce Unnecessary Expenses
One simple way to improve profitability in your law firm is to cut unnecessary expenses. Finding ways to trim fat from your budget can go a long way in increasing your firm’s profit margins. One place you can start when trying to cut expenses is by looking at staffing. Is your firm overstaffed given your caseload? If so, you may need to consider cutting a few positions. You should also look at your turnover rates, as high employee turnover can quickly become costly. If your employees do not stay very long, then you will find yourself overspending on recruitment, training, and onboarding. Thusly, you should try to figure out what is causing your turnover rate and come up with a plan to address it. Exit interviews can help you learn why employees are leaving, allowing you to adjust.
Another place to improve profitability is to see if you are overspending on office expenses. Real estate is likely one of the largest expenses your firm has, but you may have options to downsize. Allowing certain staff members such as paralegals and assistants to work from home, or even letting all your staff work a hybrid schedule, could allow you to reduce your office space, significantly reducing overhead, which could help increase profitability.
Maximize Profits with Time-Tracking Software
Considering many lawyers are paid on an hourly basis, one of the costliest mistakes that can harm a legal firm’s profitability is losing track of potential billable hours. If you or one of your partners loses track of how many hours they have worked and undercharges a client, this can significantly reduce your company’s profits. In fact, it is estimated that only 84% of billable work is invoiced by lawyers, which can represent significant losses.
Fortunately, there is a simple way to make sure that all billable hours are kept track of and invoiced to the client, and that’s by investing in time-tracking software. Time tracking programs like LawBillity can help law firms conveniently and accurately track time and expenses from any mobile device. This allows your lawyers to easily keep track of billable hours, so no potential profits are lost. LawBillity even takes the hassle out of submitting invoices by allowing you to create and send invoices for tracked billable hours in just a few clicks. With LawBillity, you can ensure that no hours are lost, as your team can easily keep a record of billable hours.
If your law firm has been struggling with profitability and you are afraid that lost billable hours may be to blame sign up for Time Tracker’s 14-day free trial, and start improving profitability in your legal firm.