The Six Classic Drivers of Law Firm Profitability
Six factors have the greatest overall impact in the profitability and long-term financial performance of small and midsize law firms worldwide.
The relative impact of each of these "drivers" varies from firm to firm; however, the solution to a law firm's profitability problems — whether short term or chronic — is almost always found in one or more of these six factors.
Fee levels
Are you charging a high enough fee?
Productivity
Are your fee earners fully utilized?
Realization
What percentage of the billable work is actually billed?
What percentage of the work that is billed is actually paid?
How promptly are you billing work in progress?
How quickly are fees paid?
What are the principal reasons for write-offs and write-downs?
Cost management
How well do you manage operating costs?
How accurate is your budgeting process?
How do you decide about unbudgeted expenses?
To what extent are budget execution issues centrally managed?
What control and accountability do individual partners have concerning budget execution?
To what extent do you consider the impact of short-term cost-management decisions on long-term business results?
Staff compensation
Are your fee earners paid more than they produce?
Leverage
Are you delegating work – especially fixed fee work – to less expensive but competent fee earners?
For more information and insights
The Six Drivers of Law Firm Profitability, first published by Walker Clark in 2007, has become on of our firm's most frequently requested and downloaded publications. This monograph investigates the challenges that each of these key profitability factors present to small and midsize law firms. It also suggests a set of highly-effective strategies that law firms worldwide are using to manage each of these factors to improve financial performance and to produce sustainable, long-term business growth.