14 Tips for Increasing Law Firm Profitability
Profitability and revenue are often used interchangeably, but they are far from the same thing. Revenue certainly factors into profitability, however, it’s net profitability that enables you to both grow and accurately forecast your firm’s growth rate. Failing to look at one without the other doesn’t give you the full picture. While an increase in clients typically correlates to an increase in revenue, your overhead and administrative costs per client are critical in determining your profit margin. Without an upward trending arrow in your profitability, how can you expect to expand and remain competitive?
To that end, law firms in the United States looking to boost their overall profitability need to find a balance between minimizing costs while maximizing revenue using the following tips.
1. Stop Wasting Time on Manual Administrative Tasks
You only have so many hours in one day. To get the most out of them, it's imperative that you spend each minute wisely. There is an exceptional amount of administrative work that goes into managing a law firm, and there’s no weaseling out of it. Even if you hire extra staff to handle the workload, more man-power equals more costs. Law firms looking to boost their productivity yet keep their costs down need to turn to legal technology.
Legal technology can help you run a much more efficient law firm with smoother processes, and better organization. The latest legal trends report shows that law firms who use legal technology like client intake and CRM collected 40% more revenue per lawyer compared to firms that were not using this kind of software.
From phone calls to consultations to drafting up complex paperwork, running an office is a lot of work. Automation makes it easy for legal professionals to hand off the busy work so that they can focus on what matters most at their law firm — the clients! By optimizing your legal intake process you'll increase your productivity, and gain more time. And as a lawyer, your time is synonymous with cold hard cash.
2. Offer E-Payment
Step one to generating a profit is getting paid. This is best achieved by optimizing and streamlining your law firm billing process. The most recent trends report revealed that 65% of clients prefer to pay with a credit card. If the majority of your clients prefer being able to pay with a credit card as a consumer, then why wouldn't they expect the same with their lawyer?
The truth is that the average American doesn't have the means to pay a $10,000 retainer in cash. Even if they do have $10,000, chances are it’s not liquid. Consequently, asking your clients to pay by check may delay the billing process. Offering E-payment either via automated payments, or transfers, is incredibly convenient for your typical legal consumer and accelerates payment substantially.
According to the 2020 trends report, around 60% of all law firms accepting credit card payments get paid on the same day that they bill, and another 85% get paid within a week. If you have a substantial amount of outstanding balances, offering alternative forms of payment incentivizes legal clients to pay faster, and in full.
3. Deliver a Top-Notch Client Experience
The cornerstone of your law firm's overall success is delivering outstanding customer service. And believe it or not, your client's overall satisfaction often has nothing to do with the outcome of their case. There are a considerable number of clients out there who are thrilled with their lawyers despite an undesired outcome in their case. This is because delivering attentive and client-focused legal services matters.
The better service you provide the more satisfied your clients will be. To that end, you should start looking for ways that you can creatively give your clients what they want while also adhering to any billing ethics guidelines. Identifying patterns in your former clients' feedback and reviews is a great place to start. From there, you can implement changes in the way you engage with your clients to deliver a better experience that will consequently lead to a steady stream of new business and profitability via word of mouth.
4. Respond With Haste
One of the most consistent complaints about lawyers is a lack of communication. A quick response is one of the most influential elements of converting clients. Every minute that you wait to get back to someone is an opportunity you're giving that prospect to go with a competing law firm.
Per this scenario, we can’t stress the importance of legal technology enough to ensure that you get back to leads and clients immediately. Automation tools make it easy to follow up the minute someone calls your law firm or sends a legal client intake form. Their information is stored in your CRM, and their client journey is tracked every step of the way, ensuring that you never miss an opportunity to follow up. In short, the more you can engage your leads and clients with swift replies, the more profitable your law firm will become.
5. Make it Easy to Communicate With You
The more business you have, the less realistic it is to stop what you're doing and pick up the phone for a 10-minute call each time your clients have a question. However, making your clients wait for a status update on their case may quickly agitate them. Offering a solution like a client portal provides instant client service without you having to sacrifice your productivity.
Clients can log in to their own communication portal where they can access any important documents and notes related to their case, and even send you a message. A CRM like Lawmatics makes it possible to see all of your client interactions in one single place, so it's easy to follow your communication when your clients have questions.
In addition to a client communication portal, Lawmatics client intake software and legal CRM comes with two-way SMS messaging. Since not all clients have the same communication preferences or access, offering SMS is a great way to make your clients feel even more connected to you.
6. Offer Automated Appointment Scheduling
Trying to find a time for a consultation that works for both your client and you can often lead to a long-drawn-out series of emails. Eliminating the bottlenecks associated with appointment scheduling can be a great time saver, and can help you take on even more business. Automated appointment scheduling allows you to send a link to your clients where they can choose from only the available dates you want them to see.
They'll receive automatic appointment reminders, and so will you, ensuring that there are no mix-ups or no-shows. Client no-shows are a serious threat to your profitability. Each time that you schedule a portion of your day to meet someone, and they don't show up, you're losing valuable time that you could have spent on more revenue-producing activities.
7. Speed Up Your Document Process
Drafting up complex legal documents can be time-consuming, and prone to error. Unfortunately, these errors can be quite expensive to fix, not to mention time-consuming. Legal document automation can shave hours off of your workday, generating everything from retainer agreements to affidavits within seconds.
Document automation tools often feature custom fields which can be used to merge any preferred data from your matters and contacts, and auto-fill it directly into your boilerplate PDF and word documents. Not only do you save time, but you ensure greater accuracy. Document assembly is only half the battle, however. You typically need your clients to sign and send important contracts back to you in order to get the ball rolling on their case.
But the longer it takes, the longer it will take to get a fee agreement signed. Many lawyers require their clients to print sign and scan these papers back to them, which can take a considerable amount of time. Offering an alternative and faster way to get documents signed, isn't just easier for your clients, it's also ideal for you. Electronic signature for legal documents makes it easy to create sign and send documents from the palm of your hand. Since your clients no longer have to complete multiple steps to return important signatures to you, you'll streamline your processes, and be able to take on more work, ultimately boosting your profitability.
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8. Demonstrate to Clients That You’re Not Motivated By Money
Many law firm owners can come across as inauthentically eager when trying to convert a lead into a client. Being overly sales-y can give off the impression that you value money over your clients' well-being.
To combat this, take time during your consultation to be a good listener to your prospective client rather than waiting for your turn to speak. And if you ultimately decide that you're not the right fit for a potential client’s case, direct them to someone who is. Your helpful and compassionate approach to referring them to another legal professional is something they won’t forget. If ever someone in their network is looking for representation in your practice area, there’s a decent chance they’ll send someone your way.
9. Know Your Worth
As more and more lawyers gravitate towards a flat fee pricing model, it's less and less necessary to track your billable hours. That being said, it's still important to ensure that you're getting paid adequately for the amount of work you're putting in.
It’s incumbent upon attorneys working on a flat fee scale to use legal reporting software as a timekeeper to calculate hours spent per client. By measuring the duration of time it takes to finish a task based on case type, you'll have a better idea of how to set a fair pricing structure. After measuring how much time you're spending on cases using a legal timekeeping software, you may be shocked to find that you're undercharging significantly for the amount of work you’re putting in.
Increasing your prices, however, doesn't always give you a competitive edge. One of the primary reasons why people don't hire lawyers is because they feel they're overpriced. Instead of raising your prices and continuing to work long hours, why not work fewer hours and keep your prices where they are?
The key isn't in your prices necessarily, but rather boosting your efficiency. By delegating your most time-draining tasks to automation, you’ll automatically have more bandwidth to take on more clients, and increase your revenue.
10. Start a Blog
A strong online presence in and of itself is a lead generation tool. And the more leads that you generate, the more profitable your law firm will become. One of the best ways to instantly start increasing your visibility is by adding a blog to your website. A blog is a great way to drive more web traffic to your website and rank higher on Google. Any content you create on your blog may be repurposed by other publishers, which means increased visibility for you. Think of it less as giving away free legal advice, and more as creating educational tidbits that will generate leads over and over again for years to come.
For more detailed tips on how to optimize your law firm website for SEO, check out our guide here.
11. Generate a Following on Social Media
Once upon a time it may have seemed crazy for law firms to advertise on a platform like Facebook — oh how things have changed. As it stands, social media is one of the best places to build an audience. Social media boasts a considerable amount of influence and taps into a variety of different demographics. From LinkedIn to Facebook, to Instagram, social media should be an integral part of your law firm marketing strategy.
It's all a numbers game.
The more shareable and informative content that you create, the more followers you'll accumulate. The more followers you have, the higher your clout and credibility. Consider your volume of followers as valuable to consumers as your Google Review scores. So, before you dismiss social media as a place for sharing exotic vacation photos and baseless conspiracy theories, think again. It can be a powerful lead magnet that you should not disregard.
12. Set Goals
Increasing your law firm profitability is a great goal, but without true quantitative milestones, it's rather dismissive. In order to see the kind of results that you want to see, you should set strategic goals that are specific, measurable, attainable, and timebound. These can then serve as a map for how you plan on increasing your profitability over time. They can be a driving force behind your business decisions, and help you stay focused and committed to planning your law firm's future.
Once your goals have manifested and are written down, track them. Though data and law may seem like an unlikely match, the most profitable law firms are the ones that keep a close eye on their key metrics to determine their profitability. Tracking your profitability can be done by following financial KPIs like:
- Net overhead
- Fee per matter
- Revenue billed per month
- Fee per new matter
- Revenue per employee
- Amount of revenue per matter
- Realization rate (amount billed vs amount of billable work)
- Revenue collected per month
- Amount of firm debt
- Anticipated annual costs
- Operating account balance
- Amount of accounts receivable (AR) outstanding
- Net income as a percentage of revenue
A CRM and client intake software like Lawmatics comes with built-in law reporting software that’s easy to use and simple to understand. Because Lawmatics allows you to run reports on only the data you want to see the way that you want to see it, you can easily track your revenue in an easy-to-read format.
13. Create a Business Development Plan
We get it, you're a lawyer, not a marketing professional. Nevertheless, the only way to start increasing your profitability is by getting the word out about your law firm and creating strategic opportunities. Unlike law firm marketing, business development for lawyers is less about advertising your law firm and more about building connections and finding opportunities for revenue that will play a critical role in your long-term law firm market performance strategy.
You should constantly be exploring new sales opportunities and identifying potential revenue. From cross-selling to your current clients, and expanding new practice areas to your law firm, there are many different ideas for developing a business strategy. By building strong client relationships, networking as much as possible in law firm culture, and encouraging referrals, you'll be on the right track to creating a profitable law firm business plan.
14. Stop Relying on Case Management Software for Your Client Intake
While case management software may be an incredibly useful tool for law firms' day-to-day operations, it's not enough to streamline your client intake process or engage your contacts in a timely, meaningful way.
The client intake process requires a tremendous amount of work, more than most case management software can handle. Client intake & CRM software organizes your client's information and helps attract prospective clients, follow up with them, and engage them every step of the client journey. It also ensures that you make a great first impression, and will follow up automatically without you having to ask if it's been done or not
If you hope to stay top of mind with clients, client intake & CRM software is essential for enhancing the attorney-client relationship starting at the client intake process.
Many firms are so focused on new and current clients that they forget how valuable former clients are. 70% of law firm business comes from referrals. Forgetting to continue to engage your former clients is a huge missed opportunity. Client intake & CRM software will continue to send messages to former clients with updates about your law firm, as well as other messages like wishing them a happy birthday. Continuing to engage your clients beyond their case is key to creating lasting relationships that lead to more and more business.
Drive Your Law Firm’s Profitability With Lawmatics
Since the onset of the pandemic, lawyers have been hit with more challenges than ever. Increasing your law firm profitability is essential for weathering these difficult times. Yet, despite these challenges, increasing your profitability is still possible by using the right technology.
Clio, 2020 Legal Trends Report, Clio.com
Youlegal.com, Five Reasons Why Lawyers Are So Expensive, Apr 18, 2018
David Finkel, 22 Simple Tactics to Increase Profitability, Inc.com, Sept 14, 2016