When Legal Events Become Financial Ones

Every legal event becomes a financial one at some point. In order to optimize these opportunities, law firm partners and operation leaders need to know which metrics matter, how they can think differently about them and how technology can help. 

Here are ten insights to capitalize on legal event opportunities: 

1.    Revenue Doesn’t Equal Profit
Top-line growth doesn’t equal partner wealth. There are multiple factors that sit beneath the revenue number, such as realization rates, collection rates, staffing leverage, administrative overhead, occupancy costs, technology investments, cost recovery and cash conversion cycles. Rather than asking themselves how to grow revenue, firm leaders should be asking how to improve the economics of the revenue they already have.

2.    Collection Rate May Matter More Than New Clients
While law firms spend enormous energy pursuing new business, they often overlook a simpler opportunity–collecting what they have already earned. That’s because growth matters, but efficiency matters too. And maximizing the value of work already performed may become more important than simply generating more work as firms invest in AI, technology and talent.

3.    Work in Process Is More Than an Accounting Number
While many think of Work in Process (WIP) as an accounting report, it’s really inventory. And it’s inventory that begins depreciating as soon as it has been created. WIP is also one of the clearest signs about how effectively law firms turn expertise into partner wealth. Firms whose operational systems communicate with one another across timekeeping, matter management, billing, financial reporting, collections and other systems have an increased ability to consistently improve profitability.

4.    Lockups — The Metric That Influences Multiple Conversations
While lockups aren’t as glamorous as revenue growth or client acquisition, they measure how long money is tied up before it reaches the firm’s bank account. That’s why successful firms view lockups as an operations matter, not an accounting one. But purchasing new technology doesn’t automatically help. Systems that work together, such as billing, CRMs, timekeeping and banking relationships, do.

5.    Why Realization Demonstrates Whether Clients Agree on Your Firm’s Service Value
The difference between billing realization and collection realization is a reflection of the market. Rather than treating write-downs as routine, firms should view them as messages from clients. By using the right technology with visibility into time, invoices, payments and CRM tools, firms can identify patterns that individual practice groups and attorneys may not see.

6.    The Most Expensive Asset Isn't Attorneys, It's Their Time
Firms can replace equipment, refinance debt, purchase software and even hire more attorneys. But once an hour is gone, it’s gone forever. That’s why activity doesn’t equate to productivity and utilization rates should be far more than just statistics on a monthly financial report. Law firms don't become more profitable because attorneys work longer hours. Firms become more profitable when attorneys spend more of their time doing work that only they can do.

7.    Leverage Is the Multiplier That Separates Good Firms from Great Ones
Traditionally, law firms define leverage as the ratio of associates to partners. But today, leverage includes more than attorneys. It now includes experienced staff, workflow automation, AI and integrated banking and payment systems. That’s why firms that create the greatest partner wealth don’t bill the most hours, they have learned how to multiply every hour they have. Imagine if every partner with better staffing, improved workflows, integrated technology and operational support could gain even five extra high-value hours each week.

8.    Client Acquisition Cost — The Investment Most Law Firms Never Measure
When asked about the cost of acquiring new clients, most law firms think about referrals, relationships and networking. But few know how much it actually costs. Many also don’t factor in how much value clients provide once they are acquired. With connected systems and the right technology, firms can understand which marketing channels produce the highest-value clients, which partners consistently create long-term relationships, which practice areas produce the lowest acquisition cost and more.

9.    Client Lifetime Value — Stop Winning Cases. Start Winning Clients.
Some of the most profitable clients at a law firm aren’t the ones paying the largest invoices. They're the ones who keep coming back. And using technology can help get more business from current clients, by providing bills that make sense, secure portals that actually work and clear financial reporting. Along with technology and efficiencies, law firms can’t forget something that’s harder to replicate – trust. And that’s really what keeps clients coming back.

10.    Revenue Per Employee — The Metric That Reveals Whether Your Organization Is Working
While revenue per employee sounds like a hard financial calculation, it really asks a much larger question: Have we built an organization where talented people can do their best work? That isn’t the same thing as being busy or working longer hours. It’s about leadership and improving efficiencies. It’s also about viewing technology as a way to make people and their expertise more valuable, not as a way to replace them.

Learn more about how our Juris Banking Group can support law firms working to identify the right metrics and ask the right questions.