Would you like to grow your law firm this year? If so, then you have come to the right place. We specialize in helping small and midsize law firms grow quickly, reach new markets, and open new offices – whether in brick and mortar or bits and bytes.
If you are like many law firm owner-operators you are focused, driven, and overworked. If you tracked performance metrics for your firm over the last year you may have realized that your growth has not reached the level you expected. Missed expectations are the fertile ground from which frustration grows and this frustration can lead to stress at work and at home. What more can a tired lawyer do to grow their firm? They need a proven growth strategy, made just for small to mid-sized law firms.
Many posts intended to help lawyers grow their firms are not much more than thinly veiled sales pitches for office automation software. Manage your cases from your phone! Share your files between offices! Keep tabs on your trust accounts remotely! These headlines are well and good, as is the promotional revenue they bring their publisher. And when the time is right, selecting the proper tool to manage these issues will be important. But these are all tools to manage aspects of a firm not to grow one – they are all tactical.
A growth strategy is just that – strategic.
It is the plan that sits above the tactics, harmonizing and directing them. It is the compass that points the way when the seas get choppy or the landscape suddenly changes or drops out beneath your feet. It is the immutable guide returning you to your path when you need to pivot around an imposing obstacle that you may not have anticipated.
Understand revenue growth and profits.
Revenue is the money your firm makes from its services and it is often referred to as the “top-line” as opposed to the “bottom-line” which are profits. Revenue is what you collect from your clients. If your firm had a cash register, revenue is what you would put in it. Let us say you are a solo practitioner charging $250 per hour, and you bill sixty hours per month. That works out to be $250 per hour x 60 hours = $15,000 per month in revenue. Multiply that by twelve months in a year and your firm makes $180,000 in annualized revenue. Want to grow by 30% this year to $234k? You have two levers available to pull. You can charge more per hour and/or bill more hours. It is that simple. But remember, simple is not easy. Plus, here is a hint: There are more levers available . . .
Learn the Five Factors of Profitable Firms.
In the section above I shared two of the factors of revenue, but there are more. Each one independent of the other, allowing an owner-operator to implement a growth strategy that fits their region, practice area, and preferences. Here they are:
1) Leads. As an attorney, you are bound by rules of professional conduct which dictate that whenever you are trying to attract clients you must do so ethically and appropriately. For the sake of the example, let us say you are like many of our clients, and you specialize in domestic law. Domestic law belongs to a special class of professional services that offer services to the mass market. Anyone, regardless of income, color, religion, job type, education level, etc. may need domestic law services at some point in their lifetime. Understanding the demographics and psychographics of your potential clients helps tremendously in targeting your lead generation efforts.
2) Conversions. Remember, when clients reach out to you for an initial consult, they are doing so for their own reasons – they don’t really care how great you are, they want to know what’s in it for them. It is up to you to understand your client’s motivation and to provide them with a plan that leads to their success and helps them avoid failure. It is up to you to spell out the likely timeline, a rough expected budget, the kinds of things that could happen to change those initial estimates, and what your joint responsibilities are. The better you are that this, the better your conversions will be.
3) Number of sales per client. You may find that some percentage of your clients need help with more than one matter. Perhaps a divorce triggers a change to the client’s will or business structure. Taking a firm mentality, the same client who came to you for a divorce, can be referred to your Estates and Probates attorney or to your Business Attorney. They may end up needed a revised parenting plan later in the same year and not need to be referred to another practice area. By addressing more than one client need, you distribute expense of client acquisition across more transactions, reducing your overall cost of client acquisition.
4) Average price per transaction (sale). As you look back over your prior two years of business you may find a startling trend. You may not have increased your rate in quite a while. It is easy to overlook. When you look deeper you might see something else important. During that same period, how have your expenses changed? Things do seem to get more expensive each year, don’t they?
If you have not increased your rate in the last year or two, please take this free bit of advice. Increase your rate today by 10%. It will mean a lot to your bottom line (your profits), and the odds of you losing a significant amount of clientele by a slight price increase are de minimus. I tread lightly in this area because the rate an attorney, or any professional charges becomes a proxy for their sense of self-worth.
Ok, back to the math. Your favorite part, right?
If you multiply the four factors above leads x conversions x number of transactions per client x average price per client you get revenue. The number we are trying to increase. By developing a smart growth strategy touching on all four of these factors, working judiciously, and adjusting when you meet an obstacle, you will grow your firm.
5) Margin. This final number is the amount of money you clear above expenses. Let’s say it costs you $150,000 (rent, salary, ads, CECs, utilities, internet, mobile phone, travel, insurance, licensing fees, professional organization dues, 401(k) / IRA contributions, accounting, legal fees, etc.) to make $180,000 then you have a margin of about 17%. When running a law firm you will see that many of your expenses are fixed, meaning that serving more clients doesn’t affect your profitability much, and certain strategies like increasing your rate, move 100% of the additional revenue directly to the bottom line as profit. If you have not done so recently, consider taking a moment and auditing your expenses for the last three months. What percentage of them are fixed (the same amount each month) versus variable (increasing or decreasing based on the number of clients you serve)?
Multiply all five factors above leads x conversions x number of transactions per client x average price per client x margin you get profit. Profit is not an evil thing, it’s the lifeblood of your practice and our economy. We pay taxes based on profits, which keep our country moving. Profits augment the owner-operator’s salary in the form of earnings and bonuses and provide many of the niceties of life like a vacation house, a nice car, or a trip to Europe. Also, philanthropy is the giving back of your profits toward causes that matter most to you, further extending your impact.
Rocco Luongo is a father, husband, business leader, TEDx speaker, and engineer. He has owned, operated, and developed businesses in the US, Europe, and Asia and works extensively helping ambitious lawyers grow their law firms with the goal of improving access to law for everyone.
Photo by Startaê Team on Unsplash.