LexisNexis Moneyball for Lawyers
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This presentation covers examines the business management side of law firms, including metrics for law firm marketing, law firm technology spending and law firm profitability. It is broken into the following sections: - Six Numbers Law Firm Stakeholders Should Know - Investing time in your law firm - Law practice vs. Law firm business - Developing a roadmap - Evaluating Clients - Working within your budget constraints
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LexisNexis Moneyball for Lawyers
- 1. Moneyball for Lawyers: How to Build a Major-League Law Practice Presented April 23, 2013 Christopher T. Anderson, J.D. LexisNexis Firm Manager® Product Manager Dad & Pilot
- 2. 1 Christopher T. Anderson Christopher Anderson, J.D. Product Manager for LexisNexis Firm Manager®, LexisNexis •Mr. Anderson is the Product Manager for the LexisNexis Firm Manager application in Cary North Carolina. •Firm Manager is a web-based practice management system that keeps the attorneys and staff of small law firms connected to all the details of their clients, cases, matters and firm business. •Christopher has presented at various State Bar associations, Law Bulletin Ethics Conference, National CLE conference, ABA TECHSHOW, and draws several hundred to webinars where he presents various topics, including running a law firm; effectively using technology and leveraging staff; and technology and trends. Formerly: •Managing partner of a full-service law firm in Georgia. •Assistant district attorney in New York City, and in Georgia •Associate General Counsel and Director of Client Services for RealLegal, a legal software company. Mr. Anderson is a graduate of Cornell University, and received his Juris Doctorate from the University Georgia School of Law in 1994. Christopher Anderson is admitted to practice in the federal and state courts of New York and Georgia.
- 3. 2 Moneyball – The Movie Inspiration – the movie, Moneyball In 2001 Oakland A’s $40M vs. $115M, limited budget compared to other ball clubs Billy Bean (Brad Pitt) was a baseball player that turned General Manager Braintrust – Statistics – Reinvents the Game
- 4. 3 Agenda Six Numbers Law Firm Stakeholders Should Know Investing time in your law firm Law practice vs. Law firm business Developing a roadmap Evaluating Clients Working within your budget constraints
- 5. 4 Why You Should Care Source: Altman Weil 2012 Law Firms In Transition Permanent Change 2009 2012 More Price Competition 42.4% 91.6% More commoditized legal work 25.5% 83.6% More non-hourly billing 27.9% 80.0% Fewer equity lawyers 22.8% 67.6% More contract lawyers 28.3% 66.2% Lower PPP/Slowdown in PPP 13.2% 47.7%
- 6. 5 Metrics Law Firms Should Measure What is your law firm's overhead? How do you determine what it is? • Overhead analysis (1) fixed and (2) incremental) • Infrastructure cost (What it takes to stay in business – fixed costs) • Cost per client acquisition (CPA - incremental cost to bring in a client) What does it cost you to service the client? • Salary Costs • Direct Costs Cost Of Servicing A Client
- 7. 6 Metrics Law Firms Should Measure Profitability sliced and diced By Firm By Practice Area By Partner By Client By Billing Staff
- 8. 7 Metrics Law Firms Should Measure According to a LexisNexis market research conducted with law firms with 1 – 100 attorneys in May 2011 » Most Solos and Duos limit their marketing to personal networking and through their website. Larger firms also leverage email lists and directories. ALM Legal Intelligence and The National Law Journal 2012 Survey of Law Firm Economics shows: » Only 3% of law firm revenue is spent on marketing Client development / marketing % of total revenue
- 9. 8 Metrics Law Firms Should Measure Technology Spend as a % of Total Revenues • ABA Technology Basic Trends Report shows law firms have increased their technology budget year over year with a 5% increase from 2011 to 2012 • On average 58.7% of law firms overall have a budget ~ 2-4% spent on technology as a % of firm revenues • The average capital budget per lawyer “sweet spot” was a range between $8K – 17K
- 10. 9 Metrics Law Firms Should Measure 1. how much you work vs. bill 2. how much you discount/write-down (before you bill 3. how much you write-off (after you bill) 4. how much you collect 5. life-cycle of AR (time of service to payment) Realization PROCESS IS A FORM OF TECHNOLOGY Not Rocket science all in your control
- 11. 10 Five Key Drivers of Law Firm Profitability Production Value Utilization Realization Leverage Margin • The standard value of production • Standard rate * standard hours = expected production from a partner, lawyer, paralegal or other timekeeper • Measure of timekeeper efficiency • (Actual number of hours worked * standard rate) / the production value • Amount of receipts received net of • Any write-ups or write-downs performed at billing • Any credits or write-offs done at time of receipt • Number of billable staff per partner • Measures on average how much staff supports each partner • Difference between your receipts and expenses • How well do you manage your expenses? Recommend: Calculating Profitability, By James D. Cotterman Copyright © 2011, Altman Weil, Inc.
- 12. 11 Metrics Law Firms Should Measure In order to measure against a benchmark, you must have a baseline • Develop a budget that includes all cash inflows and outflows • Determine Partner Net Income (compensation, fringe-benefit costs, retirement plan contributions) Industry Benchmarks So What is a Good Benchmark?
- 13. 12 Benchmarks SOURCE; Managing Partner Forum – 2012 Law Firm Economic Survey http://www.managingpartnerforum.org/tasks/sites/mpf/assets/image/MPF%20-%202012%20Survey%20of%20LF%20Economics%20- %20Exec%20Summary%20-%209-20-12.pdf Joint ALM Legal Intelligence & The National Law Journal Survey of Law Firm Economics 2012 • For law firms with 1 to 75 attorneys: • The average total expense as a % of revenue is: 55% • The average income per lawyer as a % of revenue is: 45% • 66% of law firm expenses are from salaried lawyers, paralegals and staff (36% lawyers, 30% staff & paralegals) • 10% of law firm expense is for occupancy costs • 4% for equipment (?Technology?) • 34% of law firms said 10% of billings come from AFAs
- 14. 13 Investing Time In Your Law Firm Do you know how you spend your time that you are not billing? Are you investing your time wisely on your business? Investment in the Business
- 15. 14 Developing A Roadmap •What project to tackle first? •Calculating an estimated ROI •Use a rating system to help prioritize projects Getting Started
- 16. 15 Hierarchy of Tasks Your Goal: Move up the Ladder • Marketing/ Client Development • Client Relationships • Strategic Planning • Strategic Management • High level legal skills • Middle level legal skills • Client service • Technical legal skills • Systems documentation • Office Management • Mail and email • Attorney Desk and Office Organization • Telephone answering • Supplies • Clerical • Bookkeeping
- 17. 16 Client Evaluation All Clients Are Not Equal
- 19. 18 Budget Constraints Measurement = Performance
- 20. 19 Believing in Success What you know is comfortable. Is that truly what you’re working for?
- 21. 20 Q & A Conclusion – Question & Answer Period Moneyball for Lawyers: How to Build a Major-League Law Practice Christopher T. Anderson, J.D. Christopher.T.Anderson@lexisnexis.com Sponsored by: LexisNexis Practice Management Visit us at: http://www.lexisnexis.com/law-firm-practice- management/
- 22. 21 Sources Altman Weil 2008 Economic Law Firm Survey - http://www.altmanweil.com/dir_docs/resource/41ff6ad2-da67-406e-9999- ca2aaae63539_document.pdf Managing Partner Forum – 2012 Law Firm Economic Survey http://www.managingpartnerforum.org/tasks/sites/mpf/assets/image/MPF%20- %202012%20Survey%20of%20LF%20Economics%20-%20Exec%20Summary%20-%209-20- 12.pdf 2011 ILTA/Inside Legal Technology Purchasing Survey http://insidelegal.typepad.com/files/ILTAInsideLegalTechnologyPurchasingSurvey2012.pdf Calculating Profitability, By James D. Cotterman Copyright © 2011, Altman Weil, Inc. For Your Reference and Reading Pleasure
Notas do Editor
- How many of you watched the movie Moneyball, starring Brad Pitt and Jonah Hill? For those of you who have not seen it, the movie was released in September 2011 and was focused on baseball, more specifically, about the Oakland A’s.What made the Oakland A’s ball club interesting, especially as it pertains to a law practice was, a law firm is managed by a lawyer, the ball club was being run by a ball player. Billy Bean, the General Manager was a baseball player before becoming a general manager and was able to relate to the players.The Oakland A’s ball club had $40M a year vs. the average of other balls clubs of $115M. This was a challenge when three of the Oakland A’s best players contracts were up for grabs at the end of the 2001 ball season. After a very disappointing season in 2001, Billy Bean had to make some changes. He began rebuilding the team after trading three of his best players on the team. He hired a young Yale graduate who looked at the players based on factual numbers, performance, vs. superficial traits, i.e. he has a great swing, a good look, a strong jaw, etc. etc. His non-conventional way of building a team, vs. listening to scouts, was the ticket. In the end, the new team went from one of the worst baseball teams to a winning major league ball team. What does this movie have to do with law firms? As lawyers, we were trained to discover information about prospective clients, to find the facts, yet we often don’t do this for our own law firm. How many of you know what the cost is to service your clients?How about what your law firm fixed costs are?
- More than 90% of the firms that responded to the Altman Weil Law Firms in Transition survey believe the recession served as a permanent accelerator of trends that already existed or are game changers. If you are waiting for things to go back the way they were, they aren’t going to! Dustin Cole quote. The survey was conducted in March – April 2012 with 792 firm participating. Since the recession in 2009, lawyers who responded to the Altman Weil law firm’s
- Understanding your law firm financial health is more than knowing what your share of the profit is. The first metric you should measure is the cost of servicing a client. Let’s start with identifying your law firm’s overhead and how you determine what it is. In general terms, when you determine your overhead, you first want to break out what it takes to stay in business, these costs are often referred to as fixed costs. These are things like rent, leases, systems, utilities, etc. And the cost of acquiring a new client is determined by calculating the incremental cost i.e. specific business development costs, additional
- Profitability sliced and dicedEach of these slices tells us a piece of information that helps to make data driven decisionsBy firm -
- According to a LexisNexis market research conducted with law firms with 1 – 100 attorneys in May 2011, Most Solos and Duos limit their marketing to personal networking and through their website. Larger firms also leverage email lists and directories.
- Although 58.7% of law firms overall who responded to the 2012 ABA Legal technology survey, about 40% of the solo to 9 attorney firms on average had a budget while once you get to 10 or more attorneys, 79% of the law firms have a budgetThe good news is overall, the technology budgets appear to be increasing year over year.According to the 2011 ILTA technology purchasing survey, 57% of law firms that responded spend about 2-4% of total firm revenues on technology
- This is not rocket science, and most billing systems provide standard reports that give you these numbers. If not, these can be obtained manually but it is a very labor intensive process and probably has risk of error since it is being pulled manually. This gets more interesting when automated because you can quickly run these reports for the firm but also by responsible lawyer, partner, etc. to see where there is room for opportunity (improvement)The big take-a-way here is that YOU CONTROL THESE NUMBERS. This is totally something that can be mitigated by implementing processes after getting buy in from each stakeholder.
- Calculating Profitability By James D. CottermanCopyright © 2011, Altman Weil, Inc., Newtown Square, PA, USA All rights for further publication or reproduction reserved. All $1,000,000 practices are worth the same. Would you accept this statement?
- Must develop a baseline to measure your law firm against industry standards, there are several items that are required as part of this processBudget (2) The best way to develop a budget if you don’t have one, is to take your last year’s actual cash inflows and outflows. Notice, I didn’t say revenue and expenses. The reason for being more specific to inflows and outflows is because the money received in by a law firm includes more than income and some outflows include more than costs that pertain to the law firm. Two examples are (1) purchases for assets and payments for client advances.Another industry benchmark most stakeholders care about is net income per partner. According to an article called Industry benchmarks, written by Peter Roberts, a PMA with the Washington State Bar Association, he describes a partner’s net income has three components: (1) compensation (2) fringe-benefit costs (3) retirement plan contributions. I’m sure this last component is a line item that Sources to reference related to Industry Benchmarks:http://www.wsba.org/Resources-and-Services/LOMAP/~/media/Files/Resources_Services/LOMAP/Financial%20Benchmarks%20for%20Your%20Firm.ashx
- SOURCES:Robert Half Legal – Annual Salary Guid: http://legal.rhi.mediaroom.com/2012-10-30-ROBERT-HALF-LEGAL-RELEASES-ANNUAL-SALARY-GUIDE-Starting-Salaries-for-Legal-Professionals-Projected-to-Rise-3.0-Percent-in-2013 Altman Weil 2008 Economic Law Firm Survey - http://www.altmanweil.com/dir_docs/resource/41ff6ad2-da67-406e-9999-ca2aaae63539_document.pdf Managing Partner Forum – 2012 Law Firm Economic Survey http://www.managingpartnerforum.org/tasks/sites/mpf/assets/image/MPF%20-%202012%20Survey%20of%20LF%20Economics%20-%20Exec%20Summary%20-%209-20-12.pdf
- Chris – I was thinking for this slide you have a discussion similar to what we did at the How To Manage Your Small Law Firm (feel free to reference it), specifically, how you and Rjon discussed how owners spend their time, what they ought not do.Clip here is on sending your kid to school. Do you believe?
- What project to tackle first?- Things to Consider: > Biggest pain point? > Biggest return on investment? > Effort (amount of time) > Achievability (success rate for change)Calculating an estimated ROI > Return can be defined as time savings, better use of human resources, additional revenue potentialUse a rating system to help prioritize projects
- Ruby Receptionists
- Chris Anderson “Nothing increased the profitability of my firm more than firing clients” 80/20 rule, 20% of clients bring in 80% of revenue and the bottom 20% of clients take up 80% of the time. Clip here is about firing people. “Would you rather get shot in the head, or stabbed and bleed to death?”
- Chris Anderson “Nothing increased the profitability of my firm more than firing clients” 80/20 rule, 20% of clients bring in 80% of revenue and the bottom 20% of clients take up 80% of the time.
- Behavioral change and processes can be accomplished with an investment in time and not a lot of money
- Behavioral change and processes can be accomplished with an investment in time and not a lot of money