Welcome to the
October 2005 edition of “KMS ProfitPower Tips For Lawyers™”.
Readers will be
well aware by now that we never stop pointing out areas where lawyers lose huge
amounts of revenue.
There’s a very
simple reason for this of course, and that’s because lawyers never stop doing
it!
It’s clearly not
a generational thing…we encounter many young lawyers with the incorrect mind
set.
Lawyers are
always rounding fees down or offering first consultations free, or giving quick
quotes on the telephone or by e-mail.
A classic is the
continued tendency to offer “First Consultation Free”. Smart lawyers stopped
doing that years ago!
The strategic
problem with trying to get more clients this way is that you simply do not want
a client base full of people who want the first consultation free. You want
clients who recognise that they need quality help and are prepared to pay for
it. You want clients with friends, relatives and other
connections that think the same way.
We’ve pushed for
17 years the motto, “Make yourself useful and the world will give you bread”.
Because we’ve met
a very large number of lawyers for the first time in 2005, partly as a result
of our New Zealand seminar series, we’ve had it reinforced yet again how
important it is to get the ProfitPower™ message across, and this issue is
packed with tips on this point.
Recently, as a
result of a much-appreciated recommendation from a client, I had the
opportunity to read Alan Weiss’s book, “Value-Based Fees…How To
Charge-and get-What you’re Worth”.
It’s published by
Jossey-Bass/Pfeiffer in
Weiss has some
very powerful and useful messages in this book, and it is a recommended read
for anyone who wants to earn closer to what they’re worth for the remainder of
their career.
I trust you enjoy
this issue of “ProfitPowerTips For Lawyers”, and get
good value from it.
Feature Article…
Getting A Handle On What “Productivity” Means To You…And How To
Ensure You Optimise The Productivity Of Your Resources Through Any Given
Period…
“Productivity”…Noun…”capacity to produce…
effectiveness of workforce”.
The KMS focus has
for many years been to assist firms to identify their capacity to produce using
their existing “workforce resources”, and to then implement proven systems to
identify gaps in productivity, and to set about closing those gaps.
The issue is
never about how you’re going compared to the average of similar firms. It is
about how you’re going compared to the optimum
possible given your resources during any given period.
In earlier
newsletters I have taken readers through the issue of loss of profit potential
and the KMS WorkPlan™ system for establishing reasonable goals for all individuals.
In this issue I
will take you further into the specifics, and illuminate for you exactly what
is involved, and what practice strategies and systems can be implemented to
close productivity gaps and drop the full measure of your potential profits down
to the bottom line.
Let’s get an idea of what we’re talking about in real terms.
The average loss
of productivity we see in firms we’re asked to look at is well over a hundred
and fifty thousand dollars per partner per year. It’s often a lot more, and we
have seen figures as high as half a million dollars per partner per annum…and
also closed gaps that large.
If we take a
conservative view, the average partner working another ten years, without
getting this productivity gap fixed, will lose between $1.5M and $5.0M. It’s
well worth addressing the issues properly.
There are plenty
of reasons why productivity gaps occur…
¨ People (including partners) not clear what they’re capable
of and what is expected of them…
¨ Wheel-spinning doing any work…especially client work…
¨ Over-servicing the work, and later having to write down
recorded WIP
¨ Under-quoting…
¨ Writing off WIP casually…the well-known tendency to round
bills down rather than up…
¨ Failing to properly record the activities done to achieve
the work…
¨Not enough Client Work in the firm…
¨Enough Client Work in the firm…but poorly distributed…
¨ Far too many files per fee-earner so energies are
dissipated across too many files and file velocity is
poor…
All these issues
can lead to not enough Raw WIP being recorded in the first place or an
unsatisfactory level of WIP being realised… usually a combination of both.
Readers familiar
with the Monthly KMS Performance at a Glance Report™ for the whole firm will
recognise that we place a lot of emphasis on reporting on whether there was
enough Raw WIP created by the team members in total, given their individual
WorkPlans™, and given the days in the period that each of them worked.
We then report on
the overall Realisation Rate for the firm for the month and the YTD…and project
ahead for a full year what any shortfall or surplus of productivity will mean
per partner.
Note that we are
not discussing here write-offs of Debtors which can be a big problem in some
firms too.
A further small
aside…I often have partners telling me, “You can’t expect humans to hit optimum
productivity all the time, they’re not machines…and no one is perfect”.
Of course they’re
right, but remember that there are often some team members who are running well
ahead of what’s expected in their carefully formulated WorkPlan™…and they often
prop up the underachievers to some degree and disguise the firm result a bit.
Also worth noting
that if you’re $150,000 a partner a year down on productivity the issue is not
necessarily about eliminating it totally, but on going a long way towards
closing the gap. Even $80,000 extra a partner per year would be a nice
result…so “perfect” is not the only goal.
In my experience
the three most powerful forces at work here are poor budgeting, low
expectations, and absence of a
properly designed and implemented Business Development plan.
Firms don’t have
WorkPlans™ for individuals or anything remotely like them.
Budgets are often
set by adding a percentage plucked out of the air to last year’s results…the
most common percentage used is 10%.
Firms don’t have
any real understanding of the numbers and types of files needed to keep their
workforce resources properly busy…and as a consequence they don’t drive
Business Development towards achievement of those file openings.
They tend to
largely accept what the marketplace delivers to them…fine if it’s good, but a
disaster for productivity and financial strength if it’s bad.
The bottom line…good Business Development strategies, well-implemented, and sound practice systems well-followed,
will allow you to go a long way to keeping Productivity Leakage to a minimum,
year in year out, whatever your resources at the time.
It’s now up to the management team in your firm (even it’s a team of one consisting of you) to make sure the relevant strategies and systems are in place and being fully pursued, for you to attain the extra benefits available to you in the particular circumstances of your firm.
Tip #1…How
To Learn Early That Your
It’s concerning
how many firms are still only reacting to having insufficient work when they
see the billing results. This is obviously appalling planning, and totally
inadequate systems.
The time to react
is when after analysing the new files for a month, you realise that if they
continue at that rate, they will not support the productive resources you have.
Example…If a
Family Lawyer bills an average of $5500/file and needs to bill $41,666/mth to
reach billing target, he/she needs to average file openings of .36 per business day…or 7.2 in a 20-day
month. More files are needed to cover the allocated billings of support staff.
If it’s not
happening it follows as night follows day that target billings cannot be
achieved consistently in the future unless fees are increased on average on
each file…which may not be an option.
Increased
Business Development activity needs to be swung into action urgently…as clearly
what is already in place is insufficient to optimise revenues from your
resources.
Set clear goals,
monitor closely and react early and effectively.
We have observed some firms however being too rigid in what they insist happens next. They are not flexible enough to tailor the immediate following services to the individual client.
Example…We have
seen firms sending a standard letter after an Initial consultation, with a
draft Client Service Agreement, and stating that to take matters further the
client will need to return the signed CSA and provide a retainer of, for example,
$2500.
Only 1 in 5
matters turns into anything further.
If you’re
flexible, you will get a much higher conversion rate.
For example, it
may be that what is required is a few basic steps which you only need to ask
$600 for at this stage. If the matter turns out to need to be taken further
later by all means again treat the client as an individual and get a further
retainer at that point.
Don’t scare these
clients off by standardising what must be asked for unless that is totally
appropriate. You’ve paid for Business Development to attract these prospects.
Don’t casually send them into the arms of a competitor.
My experience is
that by being more flexible you’re likely to convert 3 or 4 out of 5 paid
Initial Consultations into ongoing matters.
In reviewing the
WorkPlans™ and remuneration packages for many employed lawyers in late
May-early June 2005 we looked as usual at many sources of information on all
factors to take into account.
One really scary
salient feature from a partner’s point of view is the big difference showing up
in the surveys between chargeable hours goals for solicitors and the actuals
achieved in the year under review.
As an example, a
solicitor with 1-2 years post admission experience, working in a small Sydney
CBD firm, may fall as many as 230 hours actual recorded Client Time below
target.
At the average of
$260/hr this represents $59,800 in Raw WIP which you should have been budgeting
to convert at at least 85%…or over $50,000.
Interestingly the
key reason is not that the goals set were too high. In the KMS view the
averages were clearly too low.
The key reasons
in our view are poor time recording technique and insufficient supervision of
work levels.
In specific cases
we have seen the differential sitting at closer to $200,000 per annum.
If your partner
returns are less than you would like them to be, is this an area of slippage
you need to investigate and perhaps fix via better KMSWorkPlans™ and better
feedback and monitoring of the results displayed in the KMSFeedBack Reports™.
Over the years
we’ve seen many examples of practitioners leaving planning their exit far too
late and ending up with little or nothing to sell.
It’s not rocket
science that trying to sell your interest when you’re in very poor health is
not putting you in a strong position, and it’s usually worse if your Estate is
the vendor!
When you’re in
your prime and you’ve got the business producing good profits is the time to
start the process of getting out and getting a good price for your interest.
Can you sell down
progressively…to someone inside the firm or to a newcomer?
Can you sell out
completely and consult to the firm for a time or simply go fishing?
Don’t make the
mistake of hanging on simply because the income is good. Pick the right early
point to trade off getting some or all of your capital out, reducing your
income, and reducing or eliminating the risk of not being able to get a proper,
or any, return later.
A
cautionary tip…arrangements
with Consultants who stay on after selling out are a huge area for potential
disappointment and unease. Have a clear job specification for any consultant
and go to the same lengths to document holiday entitlements and timing and the
like as you would with any senior employee.
ProfitPower™ Personal Productivity Tip…
Review your own
activity capture every day relative to the time you put in…this can be done
easily whether you are using direct activity entry or hard copy activity
sheets.
For those of you
still not recording your activity centrally as well as to each Client File… and
not recording Firm Time activity…you are inevitably losing an awful lot of
profit every year.
ProfitPower™ Technology Tip…
Tip #1…From time to time we see technology developments that appear to offer wonderful practical benefits to law firms.
The tip this issue is to investigate Skype if you haven’t already….25 Million users worldwide and growing rapidly every day.
Make free phone
calls anywhere in the world…using your computer and the contact’s computer as
the phones…
Make unbelievably cheap calls to regular phones… anywhere in the world, using your computer as the phone…
Examples…
I spent ten minutes chatting with my son in the
It works just as well on Broadband, or on a dial-up access…just add your local call cost.
Dean is now working in
Many readers will
be aware that Google and others are now offering very similar products which
revolutionise the way many of us will make phone calls in the future.
Thankfully spam filters and virus protection have together dramatically reduced unwanted e-mails…but there are still useful tips...and traps…
Set up your
e-mail preferences so that any “suspect” items that do get through are diverted
to a Junk folder where you can see instantly that there is something in the
folder and do something with it. If it really is junk…don’t merely delete it.
“Bounce” it back to the sender. This will appear to the sender (usually in
essence the junk mailer’s software program) as if an incorrect e-mail address
was used, and with luck your e-mail address may be temporarily deleted.
I say temporarily
because the forces of evil have their computers searching the Web 24/7 for
e-mail addresses, and if your e-mail address is on your website, they have
already found it again and will have sold it in a list to many organisations
around the world…or be about to use it again themselves.
For some
startling revelations on how many such visits are made to your website daily
examine the detailed statistics from your service provider on who is visiting.
The “genuine” hits on your website will be a small proportion of the total in
most law firms.
Importantly, spam
filters operate so as to block some genuine e-mails…so check the spam folder
daily for items you want to receive, retrieve them, and clear the spam folder
to make review simple the next day. We regularly find genuine business
enquiries in our two levels of spam filter folders.
Is your e-mail
manager looking after all this for you? In bigger firms…probably…in small firms
you may well be the effective (or ineffective) e-mail manager!
Trap #1... the real practical
value of a Planning Retreat…
¨ Is your firm
dangerously reliant on one partner for bringing in work?
¨ Are you really
making enough for the effort you’re putting in?
¨ Are you trapped
in inadequate premises but can’t seem to afford new ones?
¨ Are you employing enough capable new
talent to protect your ability to get through the work and impress (keep!) the
right clients?
¨ Are you stuck for ideas and direction, but would love to break the
present cycle?
A short Planning Retreat with a really experienced
facilitator may be just the same tonic and circuit-breaker for you that it has
been for many other partners in the past.
For
more information on KMS Planning Retreats, including those held at “Knowsley
Park”…a short visual tour of the facilities, and references from your peers,
just click here… http://lawfirmprofit.com/
This Issue’s ProfitPower™
Quick Reality Check…
Are your
fee-earners getting the right type of feedback? It’s a big factor in their
performance and satisfaction (and hence their remuneration) AND your profit.
To see what
others in the profession are getting click here…http://lawfirmprofit.com/ and go to Management Communication, or
e-mail your Editor at feedbackreports@lawfirmprofit.com