Law firms have a constant focus on new file openings to drive their future revenue, and rightly so. Most revenue earned by a law firm is related to client transactions and issues. The more files opened, the greater the revenue, provided it’s priced correctly. But when it comes to revenue that you will earn today, tomorrow and next week, the gold mine is often forgotten about. That goldmine are the matters we have already won, they are the files that are already open. Keep focussed on new file openings but increase your focus on existing file velocity and reap the additional revenue from getting your matters completed faster. You won’t run out of work, it will keep coming in, you’ll just be more efficient and your clients will be happier.
Most law firms monitor the following revenue numbers:
- Productivity: the ratio of billable hours to available hours
- Fees billed per fee earner versus budget
- Write-offs: the amount of WIP (work in progress) on a file that isn’t billed
Law firms generally have a reasonable understanding of the value of their WIP (the value of the work they have done on files not yet billed). But have you ever valued the amount of work that you are yet to complete on the files that are open? Think about it. The value of this work is the value of your future revenue that you haven’t yet billed. The revenue that’s already locked into your pipeline. The sales you’ve already made. If you wanted to increase your revenue by 15% over the next quarter, finish an additional 15% of your matters faster.
In my experience, workflow management is left to chance in most law firms. The files that are worked on are largely determined by the solicitor assigned to that matter and any deadlines approaching. The workflow priorities are rarely determined by the billing that’s required to achieve targets.
One of my favourite change management mantras is the Serenity Prayer: grant me the serenity to accept what I can’t control, the courage to change what I can control and the wisdom to know the difference. Think about it. From a revenue perspective, can you control new matters and file openings, particularly when you don’t have a proactive and structured sales and marketing implementation plan? No, you can’t. You know it will happen, because it always does, but you can’t accurately predict it. What you can control though, is the speed at which matters are completed and the amount and timing of those fees. After all this is your choice. You can actually control who works on the matter, set internal deadlines for completion, set and monitor matter completion priorities.
Let’s say on average:
- Your law firm bills $100,000 per month
- You carry $150,000 in WIP at the end of each month
- The value of the existing matters yet to be billed is $300,000
This means that you’ve got 3 months of work already in the pipeline that hasn’t been billed yet, ignoring any new work that is to come in. You also have 1.5 months of billings already locked up in WIP without doing anything (your WIP of $150,000 is 1.5x your average monthly billings).
Your goal is to increase revenue over the next quarter by 15%, so that’s billings of $345,000 instead of the average of $300,000. This means an additional $45,000 of profit and cash flow for the next quarter. What would that mean for your business? To achieve this, I’m simply talking about prioritisation of what work is completed when, not necessarily increasing your fees (which you could probably do at the same time, because happy clients are happy to pay, usually) or your team doing additional hours (although, I bet they are not recording all the hours that they are working).
The net result of a structured and focussed workflow management approach is:
- You will have more matters completed earlier resulting in improved efficiency, greater capacity and happier clients
- You will have an additional profit of $45,000 over a quarter, which will turn into an additional $45,000 of cash flow
- Your WIP will reduce from $150,000 to $105,000 which drives the improved cash flow, provided your collection processes are effective
Sounds good in theory, but in practice, these are the results that law firms achieve. So how do they do it:
- They run a dedicated workflow meeting each week with their fee earners that focusses on nothing but:
- Files to progress and complete that
- Fees to do that week (interim and final) for work underway and completed
- Fee earners come prepared to the meeting with their own workflow plans for the week, including priorities and fee estimates
- Fee earners are to submit their plan each week to their team leader based on their progress and where they are at
- No other matters are discussed at the meeting
Why does this work? Because “business structure drives behaviours which determines outcomes”. If you want to change the outcomes, you need to change the structure.