When it comes to the way your law firm operates - and what you expect your lawyers to do to keep it profitable - you might be surprised what your associates don’t understand.
1. Surely discounting a little doesn’t hurt that much?
The short answer was ‘yes, it does’. But for the long answer Sam took to the whiteboard to illustrate how something as innocuous as discounting fees by 5% can have a 38% impact on profitability.
After all, if you go by the old law firm rule of one-third of fees to salaries, one-third of fees to overheads and one-third of fees to profit, any reduction in fees immediately draws money away from the third pillar of that equation: profitability. Discount too much and there’s no profit left over at all (and therefore no partner draws either).
While he was on it, Sam showed the impact regular invoicing has on cashflow and the impact cashflow has on profitability too. And yet, that still didn’t stop the second question from being asked...
2. I hear timesheets don’t matter anymore. Why do I still need to fill them out?
As an expert on profitability, Sam pointed out that no business will ever be profitable unless it knows its cost of production. And, if you’re in professional services of any kind, your cost of production comes down to the amount of time you put in.
I know some law firms like to talk about ‘value-based pricing’ but here’s the thing: even if you’re charging a fixed fee, the minutes you’re putting into producing the work for that fixed fee count. Put simply, if you’re spending too much time on it, you’ll need to up your prices or find another way to work – or you’re on the fast track to oblivion.
That’s why, after our workshop, we asked associates to check out the templates on the FMRC website and test their own cost of production, just so they can see how it applies to them directly. (And why you care so much about the hours they record.)
3. Why do I need to market? If I do a good job won’t I just get more work?
Sure, doing great work matters a lot. But it’s your ticket to play, not the result of the game. Even the best lawyers need to amplify what they do through marketing and sales.
On a personal level, I told the associates that the absolute minimum they should already be doing was identifying where they will play and building their networks so that they can begin to attract the right type of work. I told them they should also be using social media too - not just as a way of getting their message out but also to get it out to a broader network than they’d otherwise have.
Turning to more old school methods, I discussed the power of doing the simple things, such as giving contacts the occasional call to check on how things are going.
I even mentioned how the simple act of sending a Christmas card can be a powerful marketing tool. (Wow, didn’t that provoke strong reactions when I mentioned it here a couple of weeks back?)
Whatever it was they did. I told them to look for the easy wins, the low hanging fruit or whatever other cliche I could think of. After all, didn’t someone once say that from little things, big thing grow?
4. Why do I have to build a network now? Isn’t that the partner’s job?
Here’s a tip, I said, no. These days everyone is responsible for building a network that brings in work. In fact, it’s often associates who have the more face time with clients and are better placed to understand exactly what they want. Tomorrow’s partners will be using that to their (and their clients’) advantage today.
But there was another point I brought up too. For most lawyers the best source of referral work is… wait for it… other lawyers.
Given they were sitting in a room full of other lawyers when I told them this, it became the cue they needed to swap cards, ask each other questions about what they did and generally start building their own networks of referrers. There were lawyers from the city, lawyers from the bush, employment lawyers, litigators, conveyancers and criminal lawyers. And they all walked away with a fistfull of cards of people they could pass work to, and who would hopefully pass work back.
What do you think?
So there’s a sample of questions that associates asked us about the mechanics of how law firms work. What have you noticed your associates should know but are too afraid to ask?
Find out how you can send your associates along to our next workshop.
Sue-Ella is the Principal of Prodonovich Advisory, a business dedicated to helping law and accounting practices sharpen their business development practices, attract and retain clients and become more profitable.