Benchmarking financial performance of law firms – What does this mean for us?
At a conference last week in Nashville, TN, sponsored by Juris, Inc. and Citigroup Private Bank, among others, the topic was financial bench marking for law firms.
Kudos to those involved.
Benchmarking, according to the presenters, can be used for several purposes:
a. Explore operating deficiencies in the law firm
b. Understand where you are currently relative to your goals
c. Fact-based information to gain consensus among your colleagues
Is this a new fad? Or a new management tool? Industry has used this technique for many years. Several studies in the legal community have given us measurements in the past … but, there never has been the concerted effort there is today.
As the contrarian that I am, I will assert that this information is helpful … Helpful, but should not be controlling. The only thing that matters, in my opinion, is what your goals and strategies are … not what someone else’s may be. Yes, we live in a competitive world. And, to some extent, their performance may impact us. However, we must act in accord with what fits with our firm’s culture, with the capabilities of our personnel, and with the aspirations we have, not those of our competitors. Fortunately, there are enough clients in the world that there is room for us to live nicely. The benchmarking should be used as a guide to suggest areas where we might improve … but not as a mandate for change that is inconsistent with our firm’s culture.
Each presenter’s organization conducted its own survey. While there were differences, depending on the sample size and the size of law firm sampled, many of the results and conclusions were similar.
Here are some of the conclusions drawn from the Juris, Inc. small to mid-size law firm survey:
1. Partners bill more than associates
2. All law firms could improve the speed of billing, speed of collection and realization rate
3. Firm size is not the ticket to higher income
4. Top performing firms spend more money per attorney and also bill more money per attorney
5. Most firms do not have a strategic plan
Here are some additional points of interest:
1. Lawyers are lethargic about financial improvement because they believe they can continue to raise billing rates without opposition
2. Billed hours is a key measurement; it appears that partners work more hours rather than delegate to associates and market (rain-making) because their compensation is geared to effort.
3. To be expected, it is clear that compensation drives the firm dynamics.
The bottom line of all of this should be: So what? How can I use this information to improve the performance of my law firm? Here are some suggestions:
1. Begin to plan strategically – Again quoting one of my heroes, John Wooden, “Failure to plan is planning to fail.”
2. Review your compensation plan to ensure that it complements the firm’s objectives.
3. Technology can make a difference in earnings.
4. Measure your performance: Information leads to Insights which lead to Impact (and Improvement).
Categorized in: Cash Flow - Finances