Law firms face a constant battle to remain competitive in the market yet maximise their profits. This is something that is more prevalent in some specialisms than others, but the core premise remains the same – and software could be the solution.
Previously, before the financial crisis of the late noughties, the solution to a slump in the profit margins would be as simple as a slight hike in the billing rate – and others would follow suit.
Nowadays clients, commercial or private, are considerably more aware of costs and the market has moved to cater as such. Competitive pricing and more predictable payment models have been put in place to assure clients from a financial perspective. It’s obvious that looking at profit as a ‘rates issue’ no longer flies.
Therefore, a new perspective and new solutions are needed in order to address the issue of dwindling profits.
Taking a new perspective
When looking at a new perspective, if more fees can’t be raised on matters then instead there needs to be a greater attention paid to costs and there are a couple of big reasons for this – dependant on how costs are arranged.
If you’re being asked for fixed fee pricing – and more than 50 per cent of today’s transactions are done on this basis – you must know what your costs are in order to fix the fee at the right level, one where you make a reasonable margin.
Should you still have clients who operate on an hourly rate, you still need to know costs to make sure that the hourly rate is pitched at a level that’s both competitive and keeps you in profit.
The true cost of costs and how technology can help you manage them
As well, along with knowing what your costs are, firms also need to understand how costs are made up. Why does that matter? Because some costs can be rationalised such as costs around matter completion and client expectations, as well as resource allocation – ensuring that the right team members are carrying out tasks in accordance with their status and their billing potential.
In terms of making changes to secure future profitability through cost management, technology is definitely your friend.
For one thing, technology will generate the data that will give firms the visibility on costs that is necessary to optimize their pricing. Data analytics will tell you what is happening in the firm, so you know precisely where rates and fees need to be pitched.
Additionally, technology is playing an ever-greater role in enabling firms to strip out costs by automating certain tasks and allowing others to be performed more efficiently. This makes your firm more able to price competitively and to handle higher volumes of work – both of which support greater profitability.
Technology can play a key role in helping firms deliver the transparency that clients increasingly look for such as pricing models.
Finally – where hourly rates still apply – the right technology will help optimize revenue by ensuring that all the time taken by attorneys on a matter is efficiently captured and that no ‘crumbs’ of activity are forgotten.
Bear in mind that this has become crucially important in an environment where rate increases do not work anymore. The only way to increase revenue becomes by increasing the number of billable hours.
The way ahead
In the new world in which we live, firms must collect cost data. This both helps optimise traditional billing and contributes to effective fixed-fee pricing.
How do you get a handle on this? The place to start is with effective time recording software that builds an accurate time inventory on both the cost and the revenue sides. Look for the kind of software which dovetails with the lifestyles of today’s attorneys and takes advantage of the fact that they always have smart phones and tablets to hand. Capturing time using these devices becomes second-nature and ensures your firm has accurate, high quality time data to work with.
In my experience, when firms are in possession of this type of data it yields rich rewards. Whether they are on an hourly rate or fixed fees, having technology that delivers cost visibility puts firms in a much stronger position to ensure consistent profitability going forward.
Click here to learn more about Advanced’s time recording and capture software, Carpe Diem.