Law firms are always looking for ways to increase their revenue. Some firms will spend more money on marketing even if their intake process is flawed or ramp up billable hours requirements even if they only invoice a fraction of the time they track, all in an effort to make more money. When law firms are looking to increase revenue, they almost always look for answers outside of the firm. The answer is usually some variation of ‘bring in more clients’. However, increasing law firm revenue is usually more easily accessible than attorneys think. It’s about leveraging the uncollected revenue that always bubbles under the surface of any law firm.
If you envision the law firm revenue model as a funnel, the top (widest part of the funnel) is all the potential revenue that a law firm can acquire if it collects all the billable hours it tracks for every client it retains. Of course, a 100% collection rate doesn’t exist, and that perfect number is sloughed off as representations progress. Most attorneys do not record all the hours they work and many of the hours worked do not make it to the invoice. Lawyers may also have a difficult time collecting total invoice amounts. By the time all is said and done, your realization rate (what you bill versus what you collect) tells only a small part of the story about why you’re making less than you should be. When you get to the tip (the smallest part) of that funnel, you’re nowhere near maximizing your law firm’s revenue potential.
The key to making more money, then, is not to throw more money at client acquisition. Instead, your law firm should endeavor to plug as many of the holes in your revenue collection stream as possible. Once you have your revenue stream straightened out, you can invest that extra money you have found into client acquisition.
There are three main areas where lawyers often leak revenue, and we have some suggestions for how to plug them up to increase revenue.
Keeping track of time is the bane of just about every lawyer’s existence. In their defense, it’s difficult to be part of a profession where time is the stock in trade, and where you need to monitor yourself every minute of the workday. However, there are several options available to attorneys who are seeking out new ways to capture more of the time they spend.
Perhaps the most straightforward upgrade is to adopt a single-entry electronic time tracker. Many law firms keep track of their hours by hand, with a pen and a piece of paper. They then hand that paper off to a member of their support staff to input into an electronic system or input the data themselves. Not only does the requirement of multiple entries waste time, but it also creates the possibility for transposition errors, which is one way that law firms lose money. It’s much more efficient to pick an electronic time tracking tool and input your time directly.
It makes sense that a law firm would choose a law practice management system to help them track their time, which prevents double or missed billing errors. In addition to upgrading to electronic timekeeping, there are also automatic time tracking systems that capture your device time and populate a time log based on your activity. One of the main advantages of finding a time tracking system you love is that you’re more likely to record your time contemporaneously. One of the main reasons law firms lose billable time is that they try to reconstruct time spent well after they complete the work. It’s common for lawyers to round down and under-estimate time spent on a client. If you hate keeping track of time, there is also the option of adopting a flat fee billing model. However, it might take you some time to adjust to the average representation price, and you may lose money until you can do so.
Lawyers often think the sales cycle eventually comes to an end, but it never really does. What attorneys need to realize is that every interaction with a client is a sales conversation and this is especially true of law firm billing. Law firm clients are never eager to pay an attorney’s bill. Every time you send a client an invoice, you must convince them of the value of your work all over again. Lawyers’ tend to collect and describe time spent in a less than desirable way and do not provide a compelling narrative on bills. Clients want to know exactly what you did for them and the more impressive you can make it sound, the more likely the client will pay.
Another great way of demonstrating value on a bill is letting your clients when you don’t charge them. A robust event description coupled with a powerful ‘NO CHARGE’ reassures clients that you are working hard for them and willing to work with them on price. Since this is about providing more detail to your clients, be sure to include details relating to trust account funds on the invoice, per your jurisdictional requirements. If you use a case management system to keep track of your time and generate invoices automatically, it’s easy to demonstrate all the work you do for clients which makes them more likely to pay.
Once an account has gotten to the point where you are unable to collect payment, it may be too late. The solution is to collect as much money upfront as you can and create a subscription service if possible. A subscription service can be a great business model that ensures a steady stream of revenue continues to come in. Build a fee schedule that includes retainer amounts and stick to your guns. Realize that the less you get paid right away, the less you’re likely to collect in totality.
The best way to collect retainers, advance fees and subscriptions is, by far, by e-payment. If you’re not taking credit or debit cards, your potential clients will find another law firm that does. E-payments work for clients because they’re no longer being asked to draw a cashier’s check in a bank account where they don’t have the funds immediately available. E-payments work for lawyers because they remove law firms from the creditor role. You get your money, and it’s up to the credit card company to collect if there’s a default. The small credit card fee is worth avoiding the hassle and knowing you’re protected. Also, lawyers spend far less money on processing fees for e-payment providers than they lose in unsuccessfully trying to collect funds in other ways. If you are smart enough to be using a law practice management system, find one with a built-in e-payments option. You can also use the reporting options available in your system to keep track of the few accounts receivable you have left.