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Information: The Key to Successful Law Firm Management
As is the case for any profit-maximizing organization, a primary management concern for most law firms is profitability. Management wants to ensure the profitability of the firm as a whole, of practice groups, and of individual partners. Related to and supporting profitability is the management of key business-sustaining activities such as client development, staff coaching, and matter management. What information should a law firm's leadership team focus on to manage these effectively? This article discusses profitability drivers and the characteristics and content of useful management information reports that distill critical information to facilitate informed decisions by firm leadership.
Understanding Law Firm Profitability
Law firms face twin constraints on profitability: downward pressure on fees and upward pressure on costs. Large clients seek savings and greater fee predictability, driving a move to alternative fee structures. (See B. Baccus and F.L. Hirschberg, “Alternative Fee Arrangements: Meeting the Client's Needs While Maintaining Profitability,” Accounting and Financial Planning for Law Firms, v. 23 no. 6 (June 2010).) Historically, hourly rates remained consistent and increased periodically across work types and practice areas. With the trend in recent years to vary hourly prices across types of work and other flexible fee arrangements to emphasize linking prices to perceived value, managing profitability is no longer predictable. The critical issue today is to actively manage profitability, so as to understand and manage key drivers of practice economics ' at the firm, practice and individual level ' by work type and by client. Firm management teams can rely on usable information that allows them to examine the impact of variables other than hours and rates on profitability, and to make decisions accordingly.
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