Most law firms have no idea about how much revenue is actually in their pipeline.
In this Grow Your Law Firm webinar, find out the 2 simple strategies to implement that will significantly increase your revenue.
The strategies are so simple and already exist in your firm.
What’s in your Pipeline?
Hello everybody and welcome to this month’s Grow Your Law Firm webinar. My name is Matt Schlyder from FWO Chartered Accountants. We’re the lawyers’ accountants. I’d like to thank you very much for your attendance today.
Today we’re going to be covering a topic called ‘what’s in my pipeline?’ We’re going to be talking about revenue. In all the work that I do with legal firms around the country, and all the legal firms that I talk to, the thing that stands out most of all is that they don’t have a clear picture of what their forecasted revenue is going to be like. But that’s ok, it’s possible to measure that quite simply.
What I also see is that legal firms constantly wonder about what their future revenues are likely to be. They constantly focus on finding new matters instead of really having a look at what they’ve already got and how to convert that to revenue.
So, we’re going to cover all of that today and I’m just going to give you two simple strategies that you can implement in your practice to get a handle on where things are at and how you can actually drive your revenue growth.
So just before we get started, and just to get a feel for who is attending today, first of all, if you could just indicate whether or not you have attended a Grow Your Law Firm webinar in the past or whether this is your first one?
More often than not, we have new people on board who come to watch the webinars each month and thank you very much for that. For those of you who are returning, hopefully you continue to get some value out of it.
From the results I can see that it’s about half and half again. So, thank you to those who are returning and for those who are attending a webinar for the first time, you can go to my website fwoca.com.au and you can go to the library and see a whole history of webinars going back to about 2012 on many and varied different topics that apply specifically to legal firms.
Also in terms of who you are, what best describes you? Are you a principal, employed solicitor, practice manager, CEO or other? All of the topics that we cover in our Grow Your Law Firm webinar series suit all different types of participant, so whichever category you fall into, there will be something that you are able to take away.
Today about 78% of attendees are principals and 11% are practice managers or CEOs, which is encouraging. What I find with firms is that if the principals of firms can get on with strategies around measuring and actively driving activities within the firm to measure and convert revenue, then that can flow down to your solicitors and all of your team can operate to get a focus on revenue improvement.
Lastly, and this is specifically around your revenue prediction and measurement systems, can you accurately predict what your revenue will be for the next quarter?
I’m pretty sure I know what these answers will be and just as you’re answering that question, I’m seeing the numbers come up live and the results are of no real surprise to me.
I’ll just close that one off and it shows that around half of you today are saying that you would have no idea what your revenue might be for the next quarter. Around 1/3rd have somewhat of an idea because they track it a little bit and 9% are saying that they will know with some accuracy, and that’s great.
It’s actually going to be a pretty quick webinar today. I’m just going to try to visualise a couple of simple strategies for you to get a clear picture of what that revenue might look like for you going forward. We’ll also look at some simple action plans that you can go away with from today and implement straight away in your practice, so you can get working away at driving your revenue.
So, let’s have an assessment and look at your revenue.
So, revenue is generally comprised in a firm of those matters that you’ve billed. In any firm, the current and future revenue comes from three distinct different areas. One of these is your current matters that you’ve already started. Secondly are those current matters that you’ve already won but haven’t yet started and thirdly there’s your new matters. These are the ones that you haven’t yet signed up.
It might be that you have a cost agreement outstanding or even a cost agreement that hasn’t yet been sent in. When I look at most firms, I do a bit of an assessment of what their revenue positions are. Particularly when doing KPI monitoring, we’re looking at what the profitability of a firm is for a particular period and what the future profitability is going to be.
I tend to get a really clear picture of what’s possible in firms and when we start to look at current matters generally, the revenue for every matter will fall into one of these three categories.
First of all, there’s already been work done and it’s been billed so you will have a matter that hasn’t yet been completed and you’ll have an interim bill on it. You might bill on a monthly basis or you might have set stages of that matter that you bill at.
Secondly, there’s work that you’ve done that you haven’t yet billed. Generally, this is what you’ve got sitting in your work in progress, so this is all of those matters that are underway. You might have done some work on them or you might not have done some work on them, but you haven’t yet billed it.
Sorry, you have done some work on it, but you haven’t yet billed it. You may have partially billed the matter but it’s sitting in work in progress.
Then you’ve also got that work on those matters that you haven’t yet done. So, this is work that hasn’t even landed into your work in progress yet and this is generally what I see with most firms.
The proportion of the value of the work in a firm on their current matters is usually only a small portion of what is being billed at any point in time. There’s a chunk of work that’s done that hasn’t yet been billed and then there’s still a whole pile of revenue yet to be done.
So, if you think about it, you look at a matter and you look at what’s been billed and what work you have done that hasn’t yet been billed. Then you consider what work you still have to do. Then, if you look at that, the combination of those three points is the total fee value of that matter. You’ll see that there is a significant amount of revenue being billed that you haven’t yet made.
Let’s take a look at current matters that are not yet started. Well, if that’s the case, no work has yet been done on those matters, so there’s a chunk of revenue there that is still yet to be done.
Lastly, you’ll have new matters that you haven’t yet signed. So, you haven’t done any of that work yet and you haven’t signed up yet either. So, the probability of that turning into revenue is dependent on how well engaged your prospects are or whether they’re returning clients and so on, but there’s still future revenue that will be able to be generated if you manage the process correctly around signing up those clients.
But where most firms tend to spend their time is doing the work. That’s why they rely on their systems to generate their billings and produce cashflow. But they don’t have good structures and strategies around timing of billing and how clients are engaged. If you want to research into that a little bit more, then you can pop onto my website fwoca.com.au and in our library, we’ve got a whole pile of webinars on the improvement of billings, collections and client engagement.
The first thing is to really be able to get your systems and your processes in place but secondly, it’s to be able to shorten that period of time before you start a matter and when you finish it because the quicker that you complete those matters, the quicker you can bill it.
So, let’s have a look at these three different types of matters and these three different blocks of revenue in a slightly different way.
First of all, you’ve got your work done and billed. So, all I’ve done is, I’ve taken the same blocks from the previous screen and had a look at what that means in terms of dollars in a diagrammatical sense.
So, what’s the work that’s done? It’s going to be a smaller amount. Next, we have the work that’s done and not yet billed. This is going to be slightly bigger and is sitting in your work in progress, so one way of generating additional revenue straight away is by just billing out what you’ve already got in your work in progress. What’s amazing is that when I get clients to do this, there is the perception that clients won’t pay or that they’ll be fee-sensitive or all of these things.
Most of your cost agreements basically say that you will be charging out at these rates, an estimate of the fee and that you’re going to bill on a regular basis. But firms just don’t do it.
So, you’ve got a chunk of revenue that’s sitting there that can be generated and can be billed out and turned into cash. But lastly, you’ve got these three areas:
First of all, the work not yet done that you’re currently working on, the matters you’ve got that you’ve not yet started and the potential future revenue on those matters that are potentially out there that you’re yet to win and haven’t yet signed off on.
The key to revenue generation and producing more revenue for your firm, putting to one side marketing and sales activities in your business, (I’m just talking about the opportunities that already exist and that are already there on the matters that you’ve already started working on, the matters that you haven’t started working on and the matters that you’ve already had the conversations about but you haven’t yet converted).
If you look at all of the revenue, that’s where the goldmine is. Take stock of where you are right now and value it. There’s an old saying that I heard years and years ago that I use quite often: “what you can measure, you can manage”. The first thing you need to do is take an assessment of what the dollar value of all of these matters is. If you don’t know what that dollar value is, then you can’t do anything about managing it.
I think that if you were to take some time out and undertake an assessment of the value of the work that’s been done that hasn’t yet been billed, as well as the value of the work that is actually in your pipeline that’s yet to be done, you might just be motivated to change a few systems around internally. You’ll really get a push to get some of those processes changed for billing to be done earlier and also to push through the prioritisation of workflow to get the work done so you can bill it.
Let’s put some numbers to that.
I’ve just got a little spreadsheet here that I’ve put together to highlight the possibilities. The numbers I’ve put together might just be for a small firm like a sole practitioner firm that’s got a constant good flow of matters coming in. Ideally what you need to do is get a handle on all the individual matters (and I’ll come back to that in a minute), but I’m just going to put some numbers together here to categorise those matters into small, medium and large.
We’re going to have a look at what the average value of those matters is to get a feel for the total revenue value of those matters. We can look at how much of it has already been billed and how much of it has been completed and just get a picture of what all that means in terms of total dollars.
Let’s put some numbers to it. Let’s say we’ve got a whole pile of small matters in this firm, so we have 90 current matters that are open which have a matter value of $1,200. We have some of them billed but some of them aren’t, and so out of our total revenue of $108,000 that’s possible on those matters, we’ve only got 15% that’s already been billed, which is $16,200. But we’ve done a pile of that work and we’re already 65% through, so if you have a look at that, on those small matters by themselves, we’ve got $108,000 worth of revenue that we’re able to generate but we’ve only billed $16,200.
We’ve done another 50% of that work, so there’s $54,000 of current work in progress that can potentially be billed to clients. So, we’ve still got another $37,800 of work to do on it. When you have a look at these graphs just on the small matters by themselves, this is a very usual chart that I will see in firms. There’s a chunk of work in progress on matters that’s asking to be billed that isn’t getting billed and a chunk of work to do. So, on the whole, the matters are 2/3rds complete, but the client has hardly paid a cent.
Let’s take it out to some medium-sized matters now. This particular firm has got 15 medium-sized matters. They have got an average matter value of $5,000, so a total revenue of $75,000 potentially on those 15 matters. Those matters have got a better billing cycle that’s been happening on them. They’re 35% billed but they are only 40% completed, so in relation to those medium matters in this particular firm, most of the work has already been billed out. Out of the total revenue of $75,000, we have already billed $26,250, which gives us $3,750 in work in progress, which means that we’ve got $45,000 of work still to do.
This particular firm has only got two large matters worth $94,000, with an average value of $47,000. These matters are sort of being chipped away at. There’s not a great billing cycle that happens on there. There might have been a little bit of money put into trust to start with on these matters, so they’re billed out at 18% and these particular matters are 47% complete.
So, when we break all of that down and we just look at this single firm, there’s $277,000 in total revenue that they’ve got in their current workflow that’s sitting in their pipeline.
This ignores prospective clients and ignores prospective matters that are out there that they haven’t signed up and brought in. So that first number of $277,000 is a critical number to know. However, most firms have absolutely no idea about the value of the work they’ve currently got in the business. Now, I don’t know how you can manage your business, your cashflows and your profitability going forward when you don’t know how much revenue you’ve already got in the firm.
Most practices work on a hope that there will be some future revenue coming in. But look, hope is not a strategy. What you need are numbers. You need to base your decision making on empirical data.
The very first thing you need to assess is the value of the revenue that is currently in the business. It’s a critical number and I can tell you that if you can get an assessment of that and you sit down and you look at that and say ‘this is how much money we’ve got sitting in this business’, your decision making around how you focus on getting that work done, your motivation to get that work done and your structuring of workflow processes will change because your decisions that you’re going to be making are based on facts. Focus on the work you have and get that number for total revenue.
Then have a look at what’s been billed so you can see that. Most practice management systems will print up a matter list that will give you the total amount of work that has been billed on those matters and the amount that’s currently work in progress. Those two numbers by themselves will give you an assessment of what’s possible to bill right now because I can guarantee that your client engagement processes via your cost agreements will allow you to bill faster; you just choose not to do it.
So that’s the first thing. A lot of firms don’t measure their work in progress properly. They have no idea of the value of work that’s done and that’s real money that should be in your bank right now.
So, if you know your total revenue and you know what’s being billed and what the work in progress is on it, the remaining figure is the work left to do and that is what you’ve got to have a look at in terms of managing your workflow. So, depending on your prioritisation of matters and what your team looks like, you can prioritise the workflow of your team so that the $132,620 is completed faster.
There are systems that you’ll need to implement to improve but this is basically the starting point. The profitability of most firms is impacted by them not having an understanding of the revenue that they have in their pipeline. They’re too concerned about where they’re going to get their next file from instead of just driving what they’ve already got and doing it in a structured and organised way.
The power of understanding numbers is huge and if you just have a look at those two graphs there in this particular firm, out of $277,000 of revenue, there’s only 21% that’s been billed. 31% of that is work in progress that could be billed.
Now there might be a few exceptions in there, but the majority of that $85,000 could be billed. If you look at the work to do, almost half of the revenue (48%) is still to do and that’s ignoring the matters that haven’t yet come in that will come in, because they always do.
Depending on your firm and the size of your firm, sometimes these numbers just keep getting bigger and bigger and bigger and bigger. If you think about what you have sitting in your business in terms of revenue that you haven’t yet billed simply because you don’t know what the number is, you are sitting on a goldmine.
If you knew what that number was, and you can think of it in terms of ‘what have I got to do to get that number billed and in my bank account’, then you can imagine what that would do to your motivation. Just imagine how that would feel having that lump of cash in your bank.
Hopefully that just gives you a little bit of a picture around how you go about assessing your firm and having a look at what potential revenue is in your pipeline.
Ok, so strategy number one, it’s as simple as this: finish what you’ve got. Too many firms focus on what they’ve got to do to get new work in and they lose sight of what they’ve currently got.
The faster you finish your work, the more efficient it will be, the quicker your clients will pay and the happier they will be. Often you will get more work as a result. You may be stuck in there doing what you are doing and worrying about what the future might hold, but you can’t control any of that, just focus on what you’ve got right there in front of you and do these 5 things.
So, print out all open matters. This is a little bit laborious so sorry about that for practice managers if you’re there with your principals today. They might have a task for you to do. But you can pull all of this sort of data from your practice management systems and you can drop this data into Excel and manipulate it to make it easier to find the right report in your practice management system.
See if it’s got details in there for what’s been billed on matters and what’s work in progress. If you can get a list and you can put it into Excel then you’re going to be miles ahead.
So, find a list of all open matters and estimate the balance of the fee. Just like in the spreadsheet that I had here previously, find out the total revenue, how much revenue we are going to bill, what’s being billed and how much is sitting in work in progress.
Sorry, I’ve just noticed that in point two there, ‘estimate the balance of fee’ should be ‘estimate of total fee on those matters’.
So, number three then, take off what’s already been billed and the result is your revenue left to bill. Have a look at what is already in work in progress and what isn’t in work in progress. That tells you how much work you’ve still got to do. That also tells you ‘this is what our labour cost is that we’ve got sitting in our business every month, our billings are normally $80,000 a month and I have got $132,000 worth of work to do. What is the period of time in which I can get those matters completed so that I can get it into revenue and recover my labour costs and produce profit?’
So, first of all, understand your numbers so you can measure it. Then you can manage it. How you manage it is that you make sure that every matter is allocated to someone responsible. So, fee owners are now responsible for their matters and then you can focus on driving workflow and prioritisation to get the work done.
You can go in there and have a look at your work in progress and take a hard line and bill your clients. If you are building your house, your builder is going to make you pay as you go along, so get your clients to do the same. But that’s your first strategy, just finish what you’ve got.
But do that on the basis of understanding what the numbers are. If you know the value of your revenue, you know how much you’ve already billed, the work that you’ve already done, such as your work in progress, and the work that you’ve got left to do. If you know the dollar values of those, your action planning to produce predictable revenue is going to be significantly different.
Strategy two is about your new clients. It’s really, really simple. Firms constantly focus on the work that they don’t yet know about. There’s a great saying or prayer that I often use for strategic planning called the Serenity Prayer, which says ‘grant me the serenity to accept what I can’t control, the courage to change what I can and the wisdom to know the difference’. There are two things that you can control within your firm: the work that’s currently in and the work that you’ve had enquiries on that’s not yet in.
Most firms don’t keep a list of this and they don’t follow it up. So, the first thing you’re going to have is a list of opportunities where you’ve already had that engagement conversation and discussion with clients. Focus on these first because we get so busy just doing the work.
Step one, create a firm wide list of cost agreements that you’ve sent out and haven’t yet had returned signed. So, get that list, have a look over the last three months or six months or one month depending on the type of business you are, the type of firm you are and the types of areas of law you practice in. You should have a total number of the initial consultations held, so see what’s happened with those. See if there has been a cost agreement signed. Find those that haven’t gone on and undertaken or haven’t instructed you and understand who they are.
Have a list of phone calls and emails received that haven’t been followed up yet. So, where people have made an enquiry and left some details, but they haven’t as yet gone and had an initial consultation or haven’t converted into a file matter. Get a list because once you’ve got a list, you can start working on converting those matters into files. So constantly follow them all and then continue to keep a centralised list and continue to follow up.
So basically, you’ve got two strategies. One is to value and understand your revenue for the work that you’ve currently got. Do that exercise. If nothing else, all that is going to tell you is ‘hey, this is how much revenue I’ve got in.’ If your budget was a million dollars for the year in revenue and you’ve got $277,000 and you know that there’s about $220,000 roughly yet to do, then you know that you’ve got 20% of your total revenue for the year still to bill. That’s a pretty good position to be in knowing that you’ll keep getting new matters in, so assess that and determine what’s being billed. Determine what you can bill and determine the work that you’ve got left to do.
Secondly, focus on systems in your business to ensure that every opportunity is followed up. Create a list full of emails and phone calls so at least you know that you’ve maximised every opportunity in terms of conversion.
So guys, just to recap, the reason that I’ve highlighted these points in this webinar today is because most firms don’t know what they don’t know.
Most businesses have got no understanding of the revenue that’s already locked up that hasn’t yet been billed and converted to cash. Most firms I see worry about their future profitability and cashflow because they’re focusing on things that they can’t control. Just focus on what you’ve got. Just focus on getting empirical data to know exactly what the value of your work is that you’ve got in. Understand the timing of when you can bill and make changes.
Now, Einstein defined insanity as doing the same thing over and over again and expecting a different result. So please don’t be insane and hopefully you’ll go away from this webinar today and do something a little bit different.
So guys, as I said, short and sweet today. So, two things: understand what you’ve currently got in your pipeline in terms of the work you’ve got and the work that’s possible. Measure it, focus on it, and implement.
Now, as I always offer at the end of my webinars, for the first 5 people to email me today at firstname.lastname@example.org, we will organise a free no obligation 30 minute online meeting to assess your revenue. Basically, all I’ll do is get a bit of information from you in terms of your numbers and then we can just have a conversation and look at what the possibilities are for you in terms of rejigging some systems and processes. I’ll also get an understanding of what that revenue is going to look like into the future.
So again, if you’re interested in taking me up on that, then just email me at email@example.com and I’ll be in touch. We’ll organise a time to catch up on all the information that we’ve covered today.
Past webinars and other information that will be relevant to a law firm is contained on my website fwoca.com.au. We are a firm of chartered accountants who specialise in legal firms and we look after one to three principal sized legal firms up and down the east coast of Australia and in south Australia.
So, please be in touch with us if there’s anything you’d like to pass by me. Thanks again for your attendance today and good luck with getting an understanding of what’s in your pipeline.