Law Practice Management Asked and Answered Blog
Category: Law firm profitability improvement
Nov 08, 2009
Profitability Improvement Ideas
Question: What are some ideas that our eight attorney should be doing to improve profitability?
Response:
Use the RULES formula to focus your effort.
R = Realization rate or effective rate per hour.
U = Utilization – billable hours or case production hours.
L = Leverage – ratio of partners to other timekeepers.
E = Expenses – overhead.
S = Speed – collection cycle – converting work to bills and bills to cash.
Profitable law firms have an appropriate mix of each of these profitability levers. Compare against internal and external benchmarks and determine which of the levers require attention. Usually expenses is not the primary problem – in fact many firms should be spending more in the form of investment. Usually the primary focus should be on improving:
- Realization rate or effective rate per hour.
- Utilization – increased billable hours, client production hours or improved management of same.
- Leverage through increased use of associates, paralegals, staff and practice systems/technology.
- Speed/Collection Cycle.
Many firms need to increase case/matter volume through better client development and marketing to be able to obtain higher leverage ratios.
John W. Olmstead, MBA, Ph.D, CMC
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