Basics Revisited: Reducing Law Firm Overhead Costs

A law firm management's primary focus, like most professional service firms, is new business, billing a high percentage of partners' and associates' time and, of course, collecting a high percentage of billings. Under pressure to increase revenues and grow the bottom line, executives often overlook smaller firm overheads such as office supplies and related items, printing, stationery, overnight delivery, telecom and copiers.

The truth is that management just does not have the time or resources to regularly review expenses and reduce these costs. Expense reduction often falls “under the radar.” It does not matter that the firm re-bills its clients certain costs; attention to reimbursables has increased in recent years, and it remains the responsibility of the firm to manage these costs as if they were its own.

Moreover, management might lack the necessary knowledge of the marketplace to make such cost cutting initiatives effective. The supplier possesses this knowledge, putting the buyer and the company, at a disadvantage. The so-called “best deal” might in fact be anything but.

These overhead areas can yield significant and permanent cost reductions if addressed in the right way. But let's not kid ourselves. Cost reduction is hard work, requiring both a methodical approach and the employment of advanced analytical tools. No shortcuts here.

Management and administrative personnel often rely on relationships that they have developed and assume they are paying a fair price. Printing and stationery represents a perfect example. Bob Dembner, managing director of CostMarc Consulting Group explains: “We find that law firms normally employ one printer for the bulk of its needs, a tell-tale sign that they are overpaying. They explain how important quality and service are as if other alternatives cannot provide it. We typically find savings ranging from 25% to 40% in this area, with no degradation of quality or service.”

Copier costs represent another area ripe for cost reduction. You believe your costs are under control because you have taken the usual and ordinary business approach. Your copier leases were expiring and you contacted several copier companies to provide quotes and solutions going forward. You received the quotes, checked references, viewed demonstrations and negotiated the best deal you could. But what appears to have made sense may have resulted in your spending as much as 35% more than you had to. This occurs not so much because you overpaid, but more likely that you acquired/leased a great deal more copying capacity than you needed.

This situation develops because the same factor that drives production capacity ' engine size ' also drives copier speed. And copier salespeople sell speed. “What's your people's time worth? You certainly don't want people milling around the copier waiting for copies, do you?” This argument can be compelling, but buying it “lock, stock and barrel” can prove costly. Its effect is to place expensive production sized copiers in places where convenience sized copiers would be more appropriate and cost-effective.

And the “What's your people's time worth?” argument can be overdrawn. For a 10 copy job (and most walk-up jobs involve fewer than 10 copies), the difference in production time between a 65 copies/minute machine and a 35 copies/minute machine can be as little as 5 seconds per job. Yet, the monthly cost of the larger machine significantly exceeds that of the smaller one.

As important as implementing cost reduction is, monitoring remains absolutely essential to reach a firm's cost reduction goals. Despite the good intentions of vendors and suppliers, billing issues and plain human error can unintentionally eat into planned savings. Just as it lacks the resources and expertise to achieve permanent expense reduction, management cannot be expected to dedicate resources to monitoring.

Selecting a professional firm to perform the cost reduction work most often represents the best solution. Normally, fees depend on the savings you realize and begin only when you begin to receive the benefit. Being in the marketplace every day, they have the expertise to make permanent cost reduction a reality; and they perform 100% of the work. Savings typically range from 20% to 40%. Just make sure that the firm you select commits to monitor spending and audit savings for the term of the engagement.

Permanent cost reductions go right to the bottom line. The ability to achieve them without diverting partners' and staff time, and without incurring up-front fees or out-of-pocket expense, is a strong argument for seeking outside help.

A law firm management's primary focus, like most professional service firms, is new business, billing a high percentage of partners' and associates' time and, of course, collecting a high percentage of billings. Under pressure to increase revenues and grow the bottom line, executives often overlook smaller firm overheads such as office supplies and related items, printing, stationery, overnight delivery, telecom and copiers.

The truth is that management just does not have the time or resources to regularly review expenses and reduce these costs. Expense reduction often falls “under the radar.” It does not matter that the firm re-bills its clients certain costs; attention to reimbursables has increased in recent years, and it remains the responsibility of the firm to manage these costs as if they were its own.

Moreover, management might lack the necessary knowledge of the marketplace to make such cost cutting initiatives effective. The supplier possesses this knowledge, putting the buyer and the company, at a disadvantage. The so-called “best deal” might in fact be anything but.

These overhead areas can yield significant and permanent cost reductions if addressed in the right way. But let's not kid ourselves. Cost reduction is hard work, requiring both a methodical approach and the employment of advanced analytical tools. No shortcuts here.

Management and administrative personnel often rely on relationships that they have developed and assume they are paying a fair price. Printing and stationery represents a perfect example. Bob Dembner, managing director of CostMarc Consulting Group explains: “We find that law firms normally employ one printer for the bulk of its needs, a tell-tale sign that they are overpaying. They explain how important quality and service are as if other alternatives cannot provide it. We typically find savings ranging from 25% to 40% in this area, with no degradation of quality or service.”

Copier costs represent another area ripe for cost reduction. You believe your costs are under control because you have taken the usual and ordinary business approach. Your copier leases were expiring and you contacted several copier companies to provide quotes and solutions going forward. You received the quotes, checked references, viewed demonstrations and negotiated the best deal you could. But what appears to have made sense may have resulted in your spending as much as 35% more than you had to. This occurs not so much because you overpaid, but more likely that you acquired/leased a great deal more copying capacity than you needed.

This situation develops because the same factor that drives production capacity ' engine size ' also drives copier speed. And copier salespeople sell speed. “What's your people's time worth? You certainly don't want people milling around the copier waiting for copies, do you?” This argument can be compelling, but buying it “lock, stock and barrel” can prove costly. Its effect is to place expensive production sized copiers in places where convenience sized copiers would be more appropriate and cost-effective.

And the “What's your people's time worth?” argument can be overdrawn. For a 10 copy job (and most walk-up jobs involve fewer than 10 copies), the difference in production time between a 65 copies/minute machine and a 35 copies/minute machine can be as little as 5 seconds per job. Yet, the monthly cost of the larger machine significantly exceeds that of the smaller one.

As important as implementing cost reduction is, monitoring remains absolutely essential to reach a firm's cost reduction goals. Despite the good intentions of vendors and suppliers, billing issues and plain human error can unintentionally eat into planned savings. Just as it lacks the resources and expertise to achieve permanent expense reduction, management cannot be expected to dedicate resources to monitoring.

Selecting a professional firm to perform the cost reduction work most often represents the best solution. Normally, fees depend on the savings you realize and begin only when you begin to receive the benefit. Being in the marketplace every day, they have the expertise to make permanent cost reduction a reality; and they perform 100% of the work. Savings typically range from 20% to 40%. Just make sure that the firm you select commits to monitor spending and audit savings for the term of the engagement.

Permanent cost reductions go right to the bottom line. The ability to achieve them without diverting partners' and staff time, and without incurring up-front fees or out-of-pocket expense, is a strong argument for seeking outside help.