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i've been both a managing partner and built a boutique law firm my entire adult life has been spent upon maximizing the profit at law firms and i've identified six things that'll make your law firm more profitable if there's one thing i know for sure it's that every law firm can in fact be more profitable we we do sophisticated complicated work for our clients but at the end of the day our businesses they are incredibly simple but there's a better way a way that's better for both the client and your firm and the first is to look for a business model that moves away from the billable hour for the last 75 years we have measured the value that we deliver to our clients in six minute increments but it's not a proxy for what constitutes value to your clients your clients know at the end of a deal at the end of a litigation at the end of a closing whether or not the work that you did benefited them and the amount of time you invested in that work is not a proxy it is not commensurate with the amount of value that your clients receive litigators they've relied upon contingency fees for decades real estate lawyers are moving towards hybrid or flat fees because they build sophisticated documents that they can use over and over again as leverage hybrid fees are becoming more and more common in our business entrepreneurial lawyers are looking for ways to deliver value to their to their clients in ways that aren't measured in the number of minutes they devote to a project selling our time in six minute increments is not something that our clients want it's simply the mechanism that we have adopted generation after generation as lawyers as a way to try and identify what it is we should get paid in a transaction we we live in a world of leverage um wall street has given leverage a bad name but at the end of the day as a business owner leverage is how you make more money capital can be leveraged technology can be leveraged associates paralegals they can be leveraged they are all tools in which the output of your firm is increased for your benefit as the owner your benefit by way of profit your benefit by way of more billings that go out the door without additional labor without additional time on your part there's no one-size-fits-all to serve every law firm that exists out there again you have to find the leverage you have to find the the model that is correct for your firm at our firm i try and make sure that 20 of the work that we're doing is always on a contingency basis or always on a success fee basis i have friends who run very successful practices who have moved entirely away from the billable hour they work exclusively on an outcome-based component that's not just a contingency fee it can be transactional work it can be litigation that has x dollars if a particular result is received why dollars if a different result is is received and at the end of the day your clients will thank you if you align your economic interest with theirs in a way that just doesn't measure your time the second factor that can maximize the profit at your firm is to find a sub specialty the days of a solo practitioner getting out of law school finding a mentor moving into private practice putting their shingle up and becoming a general practitioner those days are over of course that's still the way lawyers work in some rural areas of course there's the exception that proves the rule but at the end of the day we live in a world right or wrong in which generalists are not perceived as providing the same value as specialist generals are often perceived in the marketplace as providing a commodity service whether it be doctors whether it be lawyers or whether it be some other profession so the second way in which you can maximize your income maximize the profit at your firm is to not just find a specialty um that's what you needed to find 20 years ago what you need to find is a subspecialty so i i'm a bankruptcy lawyer but my subspecialty is i do debtor work i do debtor work for corporate clients so i'm not just a bankruptcy lawyer i stick to my subspecialty if a bank comes through the door and needs representation i don't take it i farm that work out to someone else i refer to someone else who then will refer me back debtor work sub-specialization not only increases the amount that you can charge but it also increases your referral base because as each of us in the marketplace find ever smaller finite components that constitute our specialty we find more and more ways to refer refer work to one another the third way that your firm can maximize its profit is to find the right metrics that you need to measure much talk is made of kpis key performance indicators much talk is made of all the data that exists in the world and you can certainly find yourself going down a rabbit hole looking either at the wrong data or looking to splice it in too small an area but from moneyball to the sprinkler clock that's automated that collects data that waters my yard smarter decisions are made in business smarter decisions are made in our marketplace by analyzing data what is the web traffic that comes to your site where are they coming from who are they who are prospective clients these are all indicators that from a marketing component you need to be paying attention to but there's a formula there's a formula for the profit that you take home at the end of the day and it is the most important kpi for you to pay attention to and what is that formula your net profits your income is you plus any leverage you have whether they be associates of council whether it be paralegals whether it be technology it is you plus your leverage multiplied by your billing rate multiplied by your utilization multiplied by your realization and at the end multiplied by the margin so let's break those down first and foremost billing rates in large part outside of your control geographic location specialization subspecialty the type of work you do and the supply demand curve they all play an impact in how much you can charge in the marketplace at the end of the day but again as we'll talk about here in a few moments having the highest billing rate possible having the highest realization for your time in an alternative uh an alternative billing structure bringing the most revenue in is the first and in largest component to the formula at the end of the day what is your utilization rate it's not the number of hours that you work i've had far too many lawyers that i work with whether it be partners associates or the like who try and tell me that all hours are created equal and the simple fact is they are not um intangible hours whether they be mentoring whether they be marketing whether they be administrative work are they important of course they're important but at the end of the day they don't produce revenue so for you what is it that is your highest and best use that maximizes your utilization your utilization is the is the number of hours that you work that result in revenue coming in at the end of the day in the simple reality is that most of us most lawyers in the world spend far too much time working on things which they shouldn't be working on they work on administrative tasks they work on on functions within the office that should be delegated to someone else because you shouldn't lower your utilization you should you should engage in the highest and best use that you have for the performance of your firm for the realization of revenue for the realization of profits that is the utilization rate that you look at the next factor to look at is realization um realization is how much of the billable time that you have goes out the door and is ultimately paid by a client billable hours are not all created equal i've had far too many partners i've had far too many associates that work for me who were slow to get their time in um right down their own time produce time that was too late at the end of the day realization isn't getting your time in the system is it isn't even getting your time on to an invoice realization is how often are you paid for your time at the end of a case if you're paid 95 of the billings that go out the door your profits will be substantially higher than than if you were paid 80 of the billings that you have at the end of the day a billable hour that is not sent to a client or a billable hour that is sent to a client and not paid is the same as a vacation hour to your pocketbook at the end of the day the next component to pay attention to is margin margin is your net income divided by the fees that you generate um this is where many a lawyer has wandered off uh the path uh and impacted their own business performance different practices different lawyers have different margin criminal practices often involve having investigators intellectual property practices often have paraprofessionals or clerks who have to do research who have to prepare documents lots of different practices have different cost structures and there's also a very different approach to what a billing structure might be m a work at the largest of firms um fifteen hundred dollars plus an hour everything that they do is billable their margins are high criminal work in a local community um doing duis um flat fee smaller money takes more resources you have to invest whatever time it takes to go to trial the margin on those cases are lower and so lawyers disproportionately pay too little attention to what their margin is at the end of the day the easiest way for you to stay on top of the most important metrics that you use is to use cloud-based software whether it be clio whether it be one of their competitors if they're there are individual software packages for discrete uh practice areas like criminal uh for discrete practice areas like personal injury but at the end of the day you need to figure out what it is that constitutes both your weakness and your strength and you should focus on those things that drive profit to your firm at the end of the day if you have bad habits and you don't get your bills out on time that's where you should be focused if you have too little work you need to go out and market if at the end of the day you suffer from taking too many clients some of whom don't have the ability to pay your rates and your work goes unrealized that's what you need to be focused on to figure out how it is to maximize your profit by looking at your key performance indicators by looking at the most important metrics you need to do a self-assessment of both the strengths of your firm and the weaknesses of your firm and decide what's the highest and best use of my time where is it should i focus what is it that i need to strengthen and what is it that i need to stop doing i have never turned down a client months years decades later thought to myself boy i wish i hadn't turned that client down but i've taken too many clients i've taken clients that i knew would be difficult to pay i've taken clients that i knew would make decisions that might not be in their best interests i know i've taken clients at the end of the day that i probably wasn't the right lawyer for the problem that they had because our personalities didn't mix our our assessments of life are are risk profiles they weren't as compatible as other lawyers in the world and so to me at the end of the day one of the most important things you can do in evaluating the metrics to make your firm more profitable is to identify who is it that is your ideal client but more importantly identify the client that isn't right for you and to say no at the end of the day fourth component that is sure to make your firm more profitable is delegation um wow have i heard my partners have i heard my friends have i heard practitioners in this industry say things like well my client expects me to draft this pleading i've heard them say things like it would take me longer to explain the work to uh to someone else than to just do it myself these things these are not true your clients they in fact don't want you to draft all of the paper they want you to be the quarterback i've never in my i've never in my professional career had a client complain that i had an associate that i had a virtual associate i had a freelancer do the work they don't want to pay me at my hourly rate to do work uh that could be delegated to someone lower of course i have to take ownership of it at the end of the day of course i need to be the person who's putting the strategic thought the uh the outline of what it's going to look like thinking far down the road as to how we're going to argue in court those are all things that fall to me those are what my highest and best use is but i promise you young associates freelancers they can research better than you i promise you uh that they can take your instructions they can synthesize the information that you give at the end of the day it's your job to be the quarterback this is the most important piece of advice i was ever given by my mentor and it is in fact the primary reason why i co-founded law clerk um having left a bigger firm with more resources to a boutique firm where i enjoy my practice i enjoy my life i make more money everything is better at a boutique smaller firm for me than it was at a larger firm with one exception i don't know the resources that i had at that larger firm i don't have the ability to delegate and so um i have a stable of associates who do work for me and consistent with what we talked about earlier i try and keep them 100 percent busy um but there comes times the the peaks and valleys of a case in which we have more work than than that pool of associates than i have the time to do and that's where we turn to virtual associates that's where we turn to freelancers that's where we turn to leverage in a way to get the work done to do the best work we can for our clients to win their cases to to lean on subject matter experts and we do that by leaning on freelancers and virtual associates to go from that 100 percent that we keep our folks busy to some days we need there's 120 some days there's 140 some days it feels like there's an insurmountable amount of work that needs to be done by the end of the week but the business model that we've adopted that's not only best for our clients not only best for the product for the product that we turn out the written paper the arguments we make but what's best for our bottom line is to delegate to folks to get us not only subject matter expertise but to get us from that 100 percent to the 120 percent that is the workload that we face on a on a fairly regular basis at our firm imagine how that compounds over the course of days weeks months and years my firm we spent over a hundred thousand dollars last quarter uh hiring virtual associates and freelance lawyers to do that work that was above and beyond what we could handle in-house we found the best the brightest people we work with week in and week out and that hundred thousand dollar investment produced more than two hundred and fifty thousand dollars of billable time that came back to us but it didn't just benefit us it benefited our clients my rate is far too high to be spending time drafting pleadings my rate is far too high to be going through documents the first time around the way that you can best deliver value to your clients is to have the lowest billing rate of someone who's competent to do the job and so for us it's getting young lawyers to go through documents for us it's having someone we can lean on for subject matter expertise like tax or securities work or criminal work when when we don't have a full-time need for those people over the course of months and years and decades it will have a meaningful impact and does have a meaningful impact into the bottom bottom line of our firm again in a way that's win-win for both us and the client fifth probably the easiest of the six things we're going to talk about today to improve the profitability of your firm is to manage your ar and your whip your work in progress um at many firms accounts receivable ar represent more than six months of of billings um i've seen firms i have friends where their ar and their whip exceeds a year of the productivity of their firm and that's just simply insane that is not only not managing your ar and your whip it's mismanaging your ar and your whip i'm about to make a really big generalization here uh and i'm self aware of it but some of the smartest and best lawyers i've ever met have the worst billing practices uh the worst billing habits um they're so dedicated to their clients that they put their clients interests first just today i had a conversation with one of my partners in which i said today is one of those days that you need to work on your business not your clients business um you can't do the best work for your clients until you manage your own business and getting your ar out on time getting your work in progress billed and out the door um is the most important the fastest way for you to increase the profits at your firm you have fixed overhead you have staffing costs you have rent um you have all the costs associated with running a business give your gross revenue when you take those costs out that profit that's left well that's what you take home um those costs are fixed and so every incremental dollar that you capture from from from the fixed cost structure that you have is a dollar that you put in your pocket um the most important thing that you can do to uh to to increase to manage your ar and your whip is contemporaneous time billing um without exception lawyers who go back and recreate their time at the end of the week at the end of the month or god forbid it'd be longer than that they lose time they lose descriptions and invariably invariably they lose money that constitutes profit at the end of the day the second thing i'll tell you something that we try very very hard to do at our firm is to ensure that we transmit our bills to the clients by the fifth fifth of the month um clients have short-term memories um you get a big win it starts to fade what have you done for me lately is a mentality that clients have when it comes to our bills what bill gets negotiated the cold the old the stale bill is that the is the one in which the client comes back and says i needed 10 percent i needed 20 sometimes they come back and say i need a third or even half a bill written off before i'm willing to pay you this can all be solved if you not only keep contemporaneous time records but you transmit your bills to your client on or before the fifth of the month if it's not important enough for you to get a bill in your clients hands why should it be important enough for your clients to pay that bill on a timely basis the next thing is don't let your old stagnant ar get past 60 days in all businesses every single business ar becomes less valuable with every day that it ages um ar doesn't by the way just age after you've transmitted an invoice um your your your billing your entries they age from the moment you put them in the system um to the moment that they are paid bills that go past 60 days every bit of statistics and evidence shows us that they are less likely to be paid on time they are less likely to be paid in full and they are the most likely invoices to be written off in their entirety thus nullifying all that hard work that you did yet leaving you with a fixed overhead that that that still needs to be paid how many of us know a trial lawyer who's gone into a trial with ar in the 90 or 120 day column those trials turn from hourly billings into the worst business model that lawyers can adopt which is the contingent hourly fee the one in which you say well i'm not going to get my hourly fee paid unless i win this case unless i close this deal unless this contract goes through those are the situations that you as a lawyer as a business person as an entrepreneur you need to avoid those situations at all cost because your ar it ages poorly you need to keep control of it and if your clients go into the 60-day column you need to cut them off you need to fix it you need to make arrangements you need to have them put additional retainers in place because i guarantee you when you look back at the ways in which your business has lost money on cases this is the number one factor this is the number one concern that you should have in maximizing the profit to your firm this isn't rocket science it's business 101 but these are the rules these are the things that lawyers don't do that cost them profit at the end of the day and finally find your leverage component is the sixth factor i want to talk to you about um the billable hour um has only been around about 75 years it came in a world in which we lived in a world of factories we lived in a world of farming we lived in a world in which human output output could be measured by time how many widgets came off the factory platform the conveyor belt but we now live in a world of technology in which you can take your intellectual capital and leverage it you don't have to sell it to just one client we don't start with a white piece of paper we start with forms some of the more sophisticated entrepreneurial of us in in in this in this profession they have sophisticated form banks in which they steal causes from here or there some of them have automated them but at the end of the day they are leveraging their intellectual capital for the purpose of benefiting the client and this is where whether it be technology this is where whether it be paralegals virtual associates that we provide from law clerk these are all the fastest growing ways in which you can supercharge your firm to increase the amount of revenue that comes in the door without putting any further input of your time and labor thus maximizing your profit um there are fixed number of hours that you can work a day 365 days a year is the most is the most that you have and this is where the old axiom of work smarter not harder is what lawyers need to identify and there's no better way to create that leverage and to begin automating your firm whether it's automating the client intake process whether it's automating the way in which you populate a contract we live in a world in which there are literally thousands of technologies that are designed to make you faster and more efficient at what you do so it's automation and its scale um associates paralegals they've always been a component of what we do as lawyers at most firms to maximize profit but there are new ways to do it that's why we built law clark it's it's it's we built it because we needed it as lawyers we knew that there was a better way to do it we could deliver better product to our clients we could make more money at the end of the day and when you can drive down the cost of legal services yet produce a better product and make more profit take home that's the gold standard by which professions are judged we are in an evolutionary period in this industry unlike anything legal has ever seen before firms will look different in 10 years firms will be their own business model um some firms will will work towards commoditization um the biggest of firms will always have their bespoke bet the company work um work uh at which general council could never be second guessed for the the merger of disney and fox and hiring the most expensive and the most sophisticated of lawyers but we as lawyers our entrepreneurs at the end of the day and as entrepreneurs we need to find a better way to deliver products to our clients that's our knowledge that's our work that's core that's contracts whatever it is that you deliver to your clients find a way to automate it find a way to leverage it and this isn't something that overnight is going to turn your firm into something more profitable but over the course of a quarter or over the course of a year over the course of a couple of years you will see your profit continue to grow you will see your profit continue to compound in a way that delivers to you well i think what you're entitled to the value of what you deliver in a way that's more efficient um so in conclusion i spent my adult life at the intersection of the practice of law and the business of law every law firm i've ever been associated with or dealt with can be more profitable we do some of the most important complicated and sophisticated things in the whole world for our clients but our businesses are literally the simplest businesses that you can imagine we build our time we build a contingency we build a hybrid we send the club we send the invoice to our client and we hope they pay like every other profession we live in a world in which there's an increasing numbers of winners and losers um it's the it's it's the nature of the modern economy um entrepreneurial lawyers are going to make more and more as the years go on uh they will invent they will reinvent they will evolve they will create new systems they will create new products new ways to deliver value to their clients for which they will be handsomely rewarded but more and more lawyers will become employees they'll be working for large conglomerates they'll be working for governments they'll be working for corporations and at the end of the day they are not going to to have the success that entrepreneurial lawyers have um this world of winners and losers it's not just us it seems to be every corner every facet of our economy and to quote the boss you don't want to get stuck on the wrong side of that line