Ed offers 5 ways to increase your law firm’s revenue.
1. Emphasize collections.
2. Hire lateral lawyers to meet specific demands, a new practice area, a new need.
3. Leverage technology.
4. Create a cooperative compensation model that emphasizes the law firm as an institution.
5. Outsource functions that are better done by others. Delegate.
An ABA task force recently found that only 56% of recent law school graduates achieve full-time employment as an attorney within twelve months of graduation, over the last five years, applicants to law schools have declined by roughly 50% from approximately 100,000 to approximately 50,000 per year.
This will have a dramatic impact on the availability of lawyers for the American public. And couple this statistic with the more than 400,000 lawyers who will retire in the next 10 years, and you will see a dramatic change in the legal landscape.
For those who complain that there are too many lawyers, this should satisfy their desire to thin the ranks of lawyers. For those who want to better serve those currently under-served Americans, this will add yet another challenge to the system. And for lawyers, the likelihood increases that the Bar will add yet another requirement of pro bono service and added cost to doing business as a lawyer.
The recent Depression (2008, not 1932) has dashed the hopes and expectations of many lawyers. A recent survey reported by USA Today in its March 7, 2014 edition says that 58% of those between the ages of 54 and 64 years of age will retire later than the originally planned.
Postponement generally comes from a reduction in the value of the assets that were to be used to fund the retirement and the fear that the current value of the asset pool (stocks, bonds, 401K, real estate, etc.) no longer will be sufficient to sustain the lifestyle of the retiree, given the extended life expectancy of our population.
There is another reason. As noted in the recently published book, Life After Law: What Will You Do With the Next 6,000 Days?, most lawyers don’t know what to do with themselves after they leave their practice. While the law practice has value, the price for the practice is seldom the issue … it’s what will I do with myself? Until you can answer the question of "what will I do" and "where will I go," one is likely to stay put. Only coincidentally, this postpones the time when savings accounts must be used.
The pressure is increasingly being felt by our Baby Boomers … sell the practice or "die in your boots." The latter option is not attractive and deprives one’s family of the money that could have been paid for the value of the practice before it (the practice) dissipates and/or the lawyer dies.
The Wall Street Journal carried a column on November 11, 2013, “Big Law Mergers Questioned," that contained two blinding glimpses of the obvious – one explicit, one implicit. The explicit one was straightforward, yet seemed to elude the understanding of the writer: that in pursuing mergers to create ever-bigger organizations, law firms are simply following the paths of their clients. We saw this in the 1930s and 1940s and later when unions became larger in order to do battle with management. Today law firms are combining in order to be more respected, better received, and perceived as players in the corporate world. Small law firms supposedly can’t play in the same ballpark as a very large customer (corporate America).
Does merging law firms to make them bigger actually make them better? The answer is “yes” only when the parties have thought through what they want to accomplish and what synergies exist between them. One has to be old enough to recall that corporate America once thought that “bigger was better” when viewing itself. Then these conglomerates seemed to collapse of their own weight. The phrase, “getting back to core competencies,” became the watchword and large enterprises began breaking up into smaller units.
That’s where we get the second “blinding glimpse” – the smallest unit in a law firm is the lawyer. And corporate client after corporate client in the Journal article said that the individual lawyer is most important to them. “We hire lawyers, not law firms,” the GC of Hewlett Packard said flatly. There is some disagreement over this assertion.
Theoretically teams institutionalize the work done for a given client as they involve other firm lawyers in the delivery of legal services, even if one lawyer remains the client’s primary contact. But in a megafirm of thousands of lawyers, team members are interchangeable.
When you have a problem with your car, do you contact GM or Toyota headquarters, or the friendly mechanic at your neighborhood garage? Even neighborhood garages grow, but their size is infinitesimal compared to GM or Toyota. There is a limit to "bigger is better" beyond which "core competencies" begin to falter. Firms are kidding themselves if they think bigger by itself makes them better. And clients, often wanting to be close to the center of the law firm, will still engage a smaller, but yet large (regional) law firm.
Most people will agree that there are too many lawyers, an oversupply. (Parenthetically, I disagree; it seems to me that there is a dislocation between the supply and the demand for legal services, a situation that the organized bar has never been able to reconcile with successfully.) But I digress.
Assuming, for the moment, that there is an oversupply of lawyers, why should we care? Would that not mean the fees for legal services would come down? Would it not be best to let the marketplace handle supply and demand?
But, If the Bar wants to reign in the supply, how could they? Of course, get rid of some of the lawyers. (Making admission to the organized bar is another way, longer term. Economics seem to be handling this quite nicely, thank you. Law school admissions are down by 10 to 15%. Applications hit a 30 year low. Potential law students understand that spending many thousands of dollars to take the gamble that they will not be able to get a well-paying job at the end of three years is a fool’s gamble.)
Economics, once again, helps us answer the question of how to reduce the supply. There are more than 1 million lawyers in the United States. Of this group, it has been estimated that at least one half of this group are sole practitioners. Another statistic suggests that at least 400,000 lawyers will retire by the year 2020.
If we look at this latter group, and suggest that we treat it any differently than any other group in the organized bar, we would be accused of ageism, and prohibited discrimination. However, if we come up with a metric that is applicable to all lawyers, such as “competence,” then we are safe. Of course, if this metric also achieves our basic goal of reducing the number of lawyers available to serve clients, so much the better.
But, this metric is never applied uniformly. If we look at new lawyers, those who have been admitted to practice for three years or less, I am sure we will find many who are not “competent,” despite the fact that they have passed the bar exam. How many times have "mature" lawyers said, mostly to themselves, that they were happy that they were not the client "back then," that they didn’t know enough to be really competent to handle the matter they did …. that they learned "on the job."
What is the metric for “older” lawyers? Do they have to pass another bar exam? If yes why should age be the factor that determines whether they have to take a new examination? If not, what might it be? Nowhere in the time spectrum of a lawyer’s career is there a requirement for such an examination.
How many times have you, as an adversary, said to yourself my opponent is not very good? In fact, how many times have you said my opponent is not “competent?” Until the appropriate metric can be accepted and applied throughout the entire career life cycle, it seems to this writer that the real focus should be on meeting the needs of our clients who are not served or who are under-served, making sure that all lawyers, young and old alike, are “competent” and move away from even the appearance of ageism.
Ed offers 5 ways to increase your law firm’s revenue.
1. Emphasize collections.
2. Hire lateral lawyers to meet specific demands, a new practice area, a new need.
3. Leverage technology.
4. Create a cooperative compensation model that emphasizes the law firm as an institution.
5. Outsource functions that are better done by others. Delegate.
http://www.youtube.com/watch?v=qxAEVIj-kAA?rel=0
The following note is prompted by the comments of Susan Cartier Liebel of Solo Practice University® and her post about Kimberly, a young mother who just gave birth to her third child and was a 3L law student at Stetson. She became ill but failed to go to a doctor to address her own health. She was busy with her family and "stuff."
This is for all of you out there whether lawyer or law student, mother or father, who puts
themselves last. You put off going to the doctor for that chronic cough while you rush your child to the pediatrician for a hang nail. You eat your cold dinner out of a jar standing up and talking on the phone while you make sure your child’s meal is hot and she’s seated lest she choke on her food. You do so because ‘you can handle it’. Well, here’s the truth. You can’t.
You can’t care for your kids or your spouse if you break down physically. You can’t care for your clients if you don’t take time to reinvigorate and refresh. Remember the airline admonition: Put your air mask on first and then help your child and others around you. None of us are superhuman or immortal. There is nothing more important than your health, no final, no brief, no exam, no trial, no event. Remember this the next time you get no sleep or ignore that persistent cough or inexplicable pain in your side because ‘you don’t have time’ to slow down. Remember you can break down, too. No machine and certainly no human can work without stop and without repair from time to time.
Most of us can notice when something “isn’t right” with our bodies, and we often are quick to jump to a conclusion about the cause. Yet what we perceive to be the problem, and the reality behind it, may be much different.
A urologist recently shared an example with me, saying that many people come to him to “fix the problem” of an over-active bladder at night. They typically attribute it to a “plumbing” issue that a pill or even surgery can cure. Yet this doctor suggested that, as people age, they sleep less and they’re likely to be awakened more easily by sounds that didn’t disturb them in earlier years – a dog barking, the house creaking. Once they’re awake, they decide to honor the bladder urge so they can go back to sleep. The perception is that there is a physical medical problem. The real cause is the natural aging process and the best “cure” is to accept it.
Transfer this lesson to a law practice. Most lawyers are quick to perceive a problem when there is less money coming in the door. They immediately jump to a conclusion about “the cure” – do more marketing, or raise rates. The reality is that declining revenue typically began long before as a problem with receivables. Generating new work to cover declining revenue simply isn’t the answer. The strategy is to make sure clients know they must pay their bills within 30 days. And the way to do that is specify clear collection terms in the engagement agreement. Lawyers perceive every client as valuable and hate to cut them loose; the reality is that continuing to do work for overdue clients who don’t pay shows those clients are not worth keeping.
A new study by George Washington Law School showed that realization rates (the amount of money billed that is collected) average 83.6 percent for all law firms, a figure that is a historic low. If you perceive your revenue is down, and the reality is that you only collect 80 cents on the dollar, you’re like the urologist’s patients – you won’t get many good nights of sleep.
Virtual veterinarian faces a legal test in Texas. He moved his practice online and talked to distressed pet owners by email and telephone. He charged a flat fee, generally, and recommended treatment options. The Texas State Board of Veterinary Medical Examiners suspended his license for violating the state law that prevents veterinarians from setting up a medical relationship solely by telephone or electronic means.
The AVMA claims that it is protecting the public’s interest. The vet claims that the regulation is intended to protect the brick-and-mortar veterinarian practices.
Does this sound familiar? Every Bar regulation that I’ve ever reviewed (or testified against) has been sustained on the basis of protecting the public. Where are the interests of the membership, the very professionals who pay dues to keep staff employed? These interests seem to be relegated to the back of the bus, if not ignored completely. In the legal community, this "ship" has sailed. I don’t think anyone would claim that a "virtual" law practice is illegal. It will be interesting to see how the Texas court rules in this matter.
In today’s Wall Street Journal, the writer suggests that high priced lawyers are for sale, that is, that clients are pushing back and demanding lower fees irrespective of the stated hourly rates of their lawyers. The reporter’s perspective is skewed only to the larger law firms, “Big Law.” Small firm and sole practitioners have always walked this tight rope between client acceptance and lawyers’ fees, but this doesn’t make news.
The battle between lawyer as vendor and client as purchaser has always existed. The “battle” or adversarial conflict just never received so much publicity as it does now … And yes, some clients have become bolder as a result of the recent Depression (aka Great Recession).
Also, however, some lawyers will raise their purported rates knowing the financial officer of the corporate client will demand a discount. This way, the law firm receives the engagement, the General Counsel gets served and can protect the rights of the company, and the finance officer can assert he/she saved money for the company. A nice game.
A lawyer who was interviewed for the article suggests the real issue for all concerned: The client must believe he/she/it is receiving value for the fee paid. In other words, it’s the total cost of the legal service, not the rate per hour, that is significant. With more clients and attorneys beginning to speak this language, the real issue is coming into focus.