Profit is the most important economic goal for your law firm. It is a challenge to balance an increase in profits while reducing clients’ fees. Sure, you can pile more hours onto your already busy schedule, and you could charge higher rates than you do, but that would mean losing loyal customers and burning yourself out in the process.
You need to be in step with your numbers at all times, and know when to adjust your operations so that you can stay aligned with your financial goals. One of the most important aspects of driving profits forward is knowing where your time is going. Collecting every moment of billable time is crucial; the 2017 Legal Trends Report measured how much of a lawyer’s day contributed to actual earnings. Using three performance indicators, which included utilization, realization, and collection, they found that only 2.3 hours of an eight-hour day were spent on billable tasks. That’s just 29% of your whole day! If you do not take on the essential task of tracking your firm’s time and invoices, your practice will not be able to thrive.
How can your firm increase billable hours, and increase profits?
Try these tips to help you drive profits in easy-to-manage steps which won’t affect your long-standing relationships or your stress levels.
Know your costs. The first thing to focus on if you want to gain more capital is your costs. You need to know exactly how much is going out of your firm so that you can budget and plan accordingly. Be sure to include taxes in your overhead calculations. Obviously there are unavoidable costs such as electricity and office rentals, but look for ways to minimize these mandatory expenses, making them more cost-effective. Always look for costs you can cut without a lot of impact, and without needing a replacement. Analyze and review all growth and extra costs each year so that you can weigh them against industry trends and assess what is contributing both positively and negatively to your firm’s profit.
Keep track of your time. Remember that statistic about how much of your day is spent on actual billable tasks? Count time as money by knowing exactly where your time (and that of the firm) has been spent. Record each moment accurately and timely with descriptions of the work alongside the hours. The practice of detailing precise time spent on different projects will allow you to understand just how much time needs to be spent on each task. Take the guesswork out of billable time and record every moment. Timekeeping is a skill that needs to be honed, and by giving it due attention you will find that it gets easier and improves your profit. If you do not already use time tracking software try eBillity’s Time Tracker it is easy to setup and use within minutes and integrates with popular accounting software.
Utilize marketing. We live in a digital world where most businesses advertise online. With an increase in competition, particularly in a technological age where clients are comparing firms online before even reaching out, marketing is vital to helping your profitability. Don’t make the mistake of confusing marketing with advertising; marketing does not need to include promotional components, but is a wide-range process which focuses on the development of legal services. It is also an integral part of your firm’s long-term goal setting. Marketing can help your firm with business plans, creating your image and then using it on all external marketing materials, using a content-driven website, and collating databases for your firm with client information, referral sources, articles and case studies which speak to your firm’s accomplishments.
Alternative fee arrangements. Retaining clients is easier if you can go above and beyond their expectations. In addition to providing additional services, think about how you can implement some alternative fee arrangements for different services or sliding-scale fees for clients with lower income levels. Fixed fees are often easier than hourly fees, particularly when competition among law firms is so high. When you consider client demands, it can be difficult to retain and attract new customers if you stick entirely to the fees dependent on the time spent model. Task-based billing, hourly rates which depend on success factor, and fixed fees are important alternatives to consider if you want to understand and provide the services that your clients want most.
Track your invoices. Invoices are integral to maintaining a solid revenue stream. It is of utmost importance to know the status of your invoices at all times. Invoice Tracker can help by giving you real-time insights into which clients owe what, how and when they have been reminded, and the moment a fee has been paid with payment reconciliation. Don’t allow unpaid invoices to affect your revenue. Use an automated and customized email reminders to follow up with your clients and free up your time to follow the steps above to increase profitability. Try Invoice Tracker today, with a free 30-day trial, and sync it automatically with your accounting software to improve profit right away.