How to relieve the pressure on profitability

How to relieve the pressure on profitability

by Advanced PR, Author

This article is written as part of The Cost of Doing Business series. You can read our whitepaper on The Cost of Doing Business by clicking here, and read insights on what the UK's top businesses are focused on when it comes to rising commercial costs.

Against a backdrop of soaring costs and softening demand, law firm profitability is starting to erode. What can firms do to reverse the trend?

By way of confirming what we already knew, the latest global research is showing that demand for legal services was down in the third quarter of 2022. This isn’t too bad for now: it was only down by 0.7 per cent compared with the same period in 2021. But it’s likely to be a harbinger of worse to come. In particular, demand for M&A work has plunged 13.7 per cent.[1]

Yet slumping demand isn’t the only concern right now. There’s also the upward pressure on salaries as firms compete for talent: last year the cost of employing a fee earner was between £82k and £95k. In 2022 its risen to between £85k and £105k.[2]

Plus, there are other escalating costs as staff return somewhat to the office. Firm overheads rose by almost 13 per cent in the third quarter of 2022.[3] This may be partly attributable to one-off reconfiguration costs as firms adapt their premises and systems for a hybrid working model. But it’s clear that inflation is also playing a part. Energy costs are soaring, which will become more painful for firms as winter takes hold. The cost of paper is also rising inexorably (another reason to go paperless!), exacerbated by the fact that two of the world’s major timber producers are Ukraine (disrupted) and Russia (sanctioned).[4]

Meanwhile we can expect clients to become even more price sensitive, and competition from alternative legal service providers will continue to grow. All told the clear and present reality for law firms is that profitability is under increasing duress. Firms should act now to relieve the pressure and embed greater resilience for a difficult period ahead.

Increased agility and efficiency

In general, firms should try to increase their operational efficiency and agility. Efficiency is about doing more in less time, or with less resource. Modern case and practice management systems will help automate and streamline your processes so matters progress efficiently. As for agility, the passage of time always erodes clients’ perception of value, plus in an increasingly harsh economic climate, firms can expect to struggle more with retrieving fees from clients. Systems that can speed up billing workflows will be valuable, because the quicker a firm can submit its invoices, the higher the realisation is likely to be.

The client experience

Firms should also work to improve the client experience, creating points of differentiation and nurturing client loyalty. Enhanced client service levels will help, involving the delivery of a slicker, quicker legal service alongside more transparency. Modern technology can empower clients to view the progress of their own matters 24/7 (which also eliminates chasing) and collaborate on their own documents online. Going forward, firms that can offer this type of facility will have a competitive advantage over those that can’t.

The client experience can also be enhanced by the judicious use of modern Client Relationship Management solutions. Sophisticated CRM systems take the effort out of keeping on top of every client interaction so the client feels known and appreciated by the firm. Such systems also enable closely targeted, preference-based, marketing campaigns that will help you generate additional business from old clients, as well as new business from new ones.

Extract the value

It’s also time for firms to fully extract the value of what they know and what they’ve done. That means making systematic use of the dashboards and data analytics that modern case management systems supply to extract valuable insights. For example, data can support strategic decision making about the most lucrative practice areas.  

In tandem, firms can support profitability to a surprisingly significant degree when they invest in state-of-the-art, cloud-based, timekeeping solutions. Such systems enable the logging of time anywhere, on any device, 24/7. They’re also quick, intuitive and simple to use. For instance, with Carpe Diem, one click starts and stops running timers that are prepopulated with the necessary client and matter information.

The net result is that fee earners log more, smaller, increments of time that add up. Our data suggests that Carpe Diem can add an hour a day to each fee-earner’s billing. It leads to increased revenue, but also to highly accurate invoices, which clients appreciate. The system also generates data that gives the firm visibility of the actual cost of matter completion. It ensures you can schedule and allocate work accurately, and set competitive but still rewarding rates – factors which could be critical to the firm’s profitability in the next year or so.


[2] Figures taken from ‘the Legal Benchmarking Annual Report’ published by MHA, a network of independent UK accounting firms



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