Seven Areas Small Firms Need to Improve on to Succeed in 2017
The answer to this year’s success may well lie in last year’s financial reports. According to small-firm success strategist Ann Guinn, attorneys can take steps to increase their profitability and improve client satisfaction this year by closely examining the firm’s previous financial investments.
She tells the cautionary tale of an attorney who spent a whopping 97 percent of her firm’s revenue on overhead expenses. This number should be closer to 40 or 45 percent at the most, says Ms. Guinn. After some digging into the attorney’s annual overhead, Ms. Guinn learned the attorney had invested big money in one ineffective marketing strategy.
“I was staggered, I’d never seen numbers like this before,” said Ms. Guinn.
She referred to an investment in which the attorney unwittingly paid $1,200 per month for a marketing advertisement, only to generate one client who paid $1,800 in annual legal fees to the firm.
The attorney justified the expense as necessary for generating new business, however, Ms. Guinn’s revelation exposed the investment for what it was – a major financial drain on the firm.
For three hundred dollars the attorney could have put on a seminar in her local community and likely generated similar, if not better results, according to Ms. Guinn.
“You might be investing too much in one marketing strategy and getting very little return,” cautions Ms. Guinn.
The best way to avoid a similar situation from happening and position your firm for success in the future, advises Ms. Guinn, is to look back and pay careful attention to six important business factors:
- Profit and Loss (P&L) Statement. Before developing an annual budget, take a close look at the firm’s previous annual P&L statement. This information will shed light on where exactly the firm ended up financially for the year. As illustrated above, a good rule of thumb is to keep expenses, not including attorney salaries, below 40 to 45 percent of the firm’s total annual revenue. Anything over that means you’re overspending in relation to revenue.
- Year-End Budget. Compare the firm’s previous year budget against the same P&L statement to determine what the firm actually spent for the year, versus what it budgeted for. This exercise will determine which areas the firm might have overspent on. This helps attorneys determine if legal expenses are running wild in a certain area so they can fix it.
- Timekeeper Productivity. Carefully track timekeepers to ensure that they are hitting their billable goals. This information is critical because it helps attorneys understand if their projected revenues will actually cover their share of the firm’s overhead expenses and, more importantly, help the firm turn a profit after salaries are paid. If timekeepers aren’t hitting their goals, take action to determine what can be done to help them.
- Revenues Generated. When looking at a billable employee’s productivity, it is most important to watch their revenues generated. Even if an attorney bills 100 hours at $200.00 per hour, this doesn’t guarantee that the firm collects $20,000 in revenue. What matters is how much the firm actually collects against the hours billed by attorneys. This represents the attorney’s realization rate. For example, an attorney might bill 100 hours, but only collect 80. This means the attorney’s realization rate is only 80 percent. Ms Guinn suggests that attorneys always aim for a realization rate of 90 percent or better.
- ROI on Marketing. Take the time to do a thorough analysis of legal marketing expenses to see if those investments are providing significant returns for the firm. Dig deeper into the data to see if the money being allocated to various marketing strategies is indeed generating new business leads and makes sense for the firm. Failure to do so might put you in a similar positon as the attorney mentioned above.
- Analysis of Law Firm Resources. Take inventory of your law firm timekeepers and outside resources to determine whether they are helping or hindering the firm. For example, if you have timekeepers struggling to capture billable time, determine whether there’s a technology solution that can help. Or perhaps the firm’s existing technology isn’t being used to its fullest potential. If that’s the case, you should consider increasing the firm’s investment in staff training. The ROI for employee training can be very high if it makes the firm more effective and efficient.
- Client Satisfaction. Periodically meet with clients in person to ask how the firm is doing. Find out if their needs are being met and if they are happy with the way the firm is communicating. This information is invaluable. Set the tone at the outset of the engagement by asking clients how they prefer the firm to communicate with them (e.g. email versus phone), and what frequency of communication they prefer. This exercise ensures the firm is on the same page with its clients so they keep coming back.
“Before you move forward, it’s helpful to look back at the road you just travelled,” says Ms. Guinn. “Otherwise history will likely repeat itself unless you make improvements.”
Check back for future posts to learn more of Ms. Guinn’s tips for success in 2017.
You can also watch the recording or view the slides of Ms. Guinn’s webinar, How to Use Lessons Learned from 2016 to Make 2017 Your Best Year Ever.
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