Effective Tactics For Increasing Law Firm Profitability
One of the most common New Year’s resolutions I hear from solo lawyers is increasing profits, but in many cases, the lawyer has no idea how to achieve that goal. Since starting my practice I’ve steadily increased profits each year. It hasn’t been an easy path, but with hours of research, talking to successful attorneys, and plain old trial and error, I’ve come up with a few tactics that have helped my practice’s profits grow year after year.
Tactics To Improve Your Law Firm's Profitability
How To Use Marketing To Improve Profitability
Establish a marketing budget. Even if it’s a small budget, having one is the first step to creating a successful marketing strategy. There are many ways to market for free but if you want to take your practice to the next level you have to spend some money. The budget could include paid advertising, organizations you want to join, or any other ideas you have. Have a marketing plan. If you want a profitable law practice you can’t just hope it will happen. You have to have a plan. You need to create and maintain a sales pipeline or sales funnel that targets your ideal clients. Once you have a plan in place it will better enable you to predict potential profits. Get new business from current clients. Think about other services you could offer current or past clients. Since they already know and trust you it will be easier than acquiring brand new clients.
Improving Profitability With Practice Management
Improve your systems. A system is basically a documented routine that is done exactly the same way no matter who is doing it. As solo’s we can only handle so many cases at a time, and that limits the profits we can make. But having the right systems in place will not only allow you to get more done, it will also make it easier to delegate work to an employee when you are ready. Avoid bad clients. I can’t emphasize this enough. The biggest drain on your energy, productivity, and time is a bad client. We know they are not a good fit when they retain us, but we accept them anyway because we need the money. It’s not worth it. Consider a virtual office. While I sometimes miss my office dearly, switching to a virtual office was the best thing I’ve done for my business financially. I spend so much time in court and meetings that paying for office space was not the best use of my resources. But having a virtual office and the ability to still meet with clients in a professional space has helped make my practice more profitable. Systematically gather client feedback. Your best source of leads will be from happy clients. But you won’t know if they are happy or not if you don’t ask. Having a system in place where you can regularly collect feedback that you actually take action on will help you provide the best service possible. Reputation matters and a reputation for excellent service provides a value that will not only get you more referrals but is a basis for higher fees.
Improving Law Firm Profitability Using Financial Management
Raise your rates. The easiest and most obvious way to increase profitability is to simply raise your rates. Many lawyers go years without increases their fees and their business remains stagnant. Even a small increase can make a difference in the quality of clients and your profits for the year. Have a process for managing receivables. You won’t get paid if you don’t send an invoice. The lawyers I know who have the hardest time getting paid are also the ones who are always behind on invoices. Send them out monthly and be sure to include the terms of your fee agreement on the invoice. Both you and the client should know what’s going to happen if you are not paid on time. Get better at capturing billable time. If you wait until the end of the week or the end of the month to capture your billables I guarantee you are leaving thousands of dollars on the table at by the end of the year. You should be tracking daily, ideally as soon as you complete a task. I keep a note on my phone where I take 30 seconds to write down time spent on a task. Even if I don’t put it in my case management software until the end of the week, at least I have an accurate record of what was done. I also find it helpful to track time that is not billable. That way I can see if I’m spending too much time on certain things.
Review your expenses. Review your spending over the last few months and ruthlessly make cuts. Are there things you are paying for that you never use or could live without? Get paid in advance. As often as possible get your entire fee in advance. Consider flat fees paid up front. About half of my clients choose to pay flat fees and it’s one of the reasons I rarely have issues getting paid. It’s also much easier to save and plan for slower months when I get lump sums in advance. Don’t extend credit. You are a law firm, not a bank. Other than emergencies, all fees outside of my legal fee are either paid in advance or paid directly by the client. For example, if my client wants me to file a motion they give me the filing fee before the motion is filed instead of me billing for it later. This way my operating cash is not tied up when I need it. I lay this out in my retainer agreement and so far I have not had any complaints. You don’t have to apply all of these tactics to see your law firm’s profits grow, you just need to test a few out to see what works best for you.