4 tips of increasing law firm profitability and performance
The legal sector is an extremely competitive market and it can often be difficult to increase profitability and performance. However, as legal clients are continuing to demand more for less, law firms need to become more efficient and take steps to maximise their profitability for a greater return.
Additionally, with the ongoing deregulation of the sector (including proposed plans to remove barriers to entry for Alternative Business Structures [ABSs]) the future is certainty not going to be business as usual for many law firms. The legal profession is today presented with challenges that are infinitely more difficult than ever before.
In this article we consider some of the more important points for increasing law firm profitability and performance.
1. Innovation and diversification
There are major opportunities for growth out there for law firms that are able to bring a quick and flexible approach to the legal services that they provide. Now perhaps more than ever the opportunities to increase law firm profitability depend on the work types engaged and service delivery, with innovation and diversification serving as an essential driver.
Loosely speaking, there are four main ways to innovate:
- Products and services;
- Pricing models;
- Service delivery, and;
- Internal processes and strategy.
For many laws firms, innovation is becoming embedded as a core part of what they do and we are seeing a lot of positive innovation being done across the legal sector. In our experience, innovation in the legal sector is essential if a firm wishes to take advantage of some of the more profitable opportunities in an exciting but challenging market.
2. The era of information technology
Technology that streamlines client processes to increase law firm profitability is nothing new for the legal sector. Law firms have long adopted technology that facilitates secure file sharing, client knowledge portals etc, and these are now essential parts of service delivery and the client experience.
In the future, it is likely that information technology will play an even greater role in the legal services market and will undoubtedly be a major focus of investment for law firms in the year ahead.
Law firms will, however, inevitably find themselves more vulnerable to cyber breaches in the years to come, and need to be prepared for such attacks. Firms must implement robust internal standards and procedures to ensure that criminals do not undermine their financial standing and profitability. As well as the financial impacts this can have, firms must not lose sight of the reputational damage that can be caused.
3. Have a long term goal in mind
By keeping on top of finances and day-to-day business operations legal professionals have the opportunity to improve the firm, increasing its profitability and thereby improving the value of its services as well.
The age profile of the sector is rising and many of those who are approaching retirement age have been instrumental in building and leading the practice in which they work. When they step down they leave large shoes to fill, which is why law firms must look to the future and set clear goals about how they can increase profitability in the long term, as well as the near future. A strong plan must be drawn up at the earliest opportunity.
4. Reduce administrative costs and utilise staff time
The burden of administration and compliance often takes up more time than it should. A key driver to increase law firm profitability, as with any business, involves the efficient utilisation of resources; for a law firm this often boils down to staff time. The challenge is to maximise the number of chargeable hours and reduce the amount of non-chargeable time.
Linking with point 2 this can be achieved through the power of technology, allowing staff to focus on fee-earning tasks, instead of managing and inputting data on complex systems. In essence, technology enables more traditional and routine tasks to be automated, maximising chargeable hours.
Reducing administrative costs could also include things like outsourcing of bookkeeping and payroll matters.
How we can help
As you can see, there are a number of different opportunities available to increase law firm profitability.
This article only really scratches the surface of ways to maximise profitability. There is no “one size fits all” approach, but some answers are easier than others and some objectives are easier to achieve, whilst others can take longer.
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