“If you can’t remember what you had for breakfast on October 15th, then chances are you won’t be able to remember how much you billed clients on that same day,” according to Nancy Griffing of 35*45 Consulting, during a recent webinar focused on law firm profitability.
Because of this, attorneys lose anywhere from 55 to 70 percent of their actual monthly billable time when trying to reconstruct it after the fact.
According to Ms. Griffing, one of the easiest ways to prevent this type of under-earning is to provide attorneys and firm timekeepers with useful tools, such as the LexisNexis PCLaw or Juris billing and accounting software, to make entering time easy, while the work is actually happening. In other words—make it a seamless part of their daily workflow.
Additionally, it is important for law firms of all sizes, to know what motivates their timekeepers and integrate those motivators into the overall timekeeping process. In doing so, the firm can develop useful timekeeping metrics that can be used to inform future business practices and improve the firm’s bottom line. Here are a few timekeeping motivators shared during the session:
- Develop Consistent Measurements. It’s logical that attorneys will adhere to timekeeping processes, as long as what’s being measured remains consistent. For example, if timekeepers are evaluated on hours billed one month and then dollars collected the next; it becomes hard to understand where to make improvements, since these two methods are very different.
- Use Timely Reports. It’s not just about entering time, but entering it in a timely manner, so the firm can use the information to make smarter business decisions. For example, if a timekeeper’s feedback comes in at the end of the year, it becomes too late at that point to change the firm’s focus.
- Develop Clearly Defined Incentive Programs. Chances are if an attorney or timekeeper understands compensation drivers, they will be much more likely to stay focused on their goals.
- Track Billable, Billed and Collected Money. It’s important to track the firm’s billable hours if they use the flat fee method, as well as look at what the firm is charging clients vs. what is actually being billed. It is also important to keep track of funds collected. After all, if clients are happy then they will gladly pay for the work.
- Understand Partner Motivation. All partners need to be in agreement on what the firm wants to see from a profitability perspective. Partners should agree on the type of work being brought in, completion of that work, and billing for it. They also need to be clear on the value of these three roles in the firm and how they will be compensated.
“The number one goal for all firms is to bill what they work, which the hardest part,” according to Ms. Griffing.
Making sure all the firm’s potential billable time is being recorded, is a good start. Equally important is keeping track of the firm’s non-billable time. If an attorney secures a $15,000 project, it’s important to understand if that price will actually cover all the work involved in receiving the client (e.g. meetings, preparation, calls, etc.). Understanding this data becomes critical to the profitability of the project.
In the end, firms who want to take their profitability to the next level should begin to dig deeper to understand what’s behind their numbers, find ways to improve firm efficiency and understand underlying costs. By doing so, firms will be able to price themselves aggressively and use the information to chart their future course.