The Biggest Mistake You Might Be Making in Your Law Firm

Last year, Clio published its Legal Trends Report, evaluating everything from client satisfaction to productivity in the legal market. While there are several stats that cause pause, I was most surprised by the profitability funnel illustrated on page 11. This funnel represents how the typical eight-hour workday gets reduced to actual earnings. As the report explains,

The most significant deficiency by far is in the 5.6 hours that are missed at the utilization level. This indicates that lawyers are only able to put a small fraction of their day toward billable tasks. When factoring in the number of billable hours that never make it to an invoice and the amounts forfeited by unpaid bills, the average lawyer earns just 1.6 hours in billable work for their firm each day.

Clio 2018 Legal Trends Report, page 11

One point six hours. 1.6!

The average lawyer earns revenue for less than a quarter of the workday. The other 6.4 hours are losing money, and that loss isn’t because of one factor. It’s many, including admin time, inefficiencies, and billing disputes. Luckily, most can be addressed to help increase revenue and profits.

Admin time is generally the time we spend running the business. From buying office supplies to running payroll, they are activities not directly related to delivering value but are necessary to be able to. While we should never bill clients directly for this type of work, if we structure our fees based on our hourly cost and not an arbitrary hourly rate, we can bake in some of the cost for admin time so we aren’t losing it entirely. Additionally, we can become more efficient.

As Clio strongly concludes, “The fact that lawyers miss out on nearly 5.6 hours of billable work each day should be a wake-up call for why efficiency is so important to law firms—it’s a critical leverage point for increasing revenues. If ignored, inefficiency can have a devastating effect on profitability, which is a problem that will only compound day to day, year to year.” While things like admin tasks will always be necessary, if we reduce the time we take on them or outsource them entirely, we will only increase our efficiency throughout the day. Further, even with tasks directly related to providing client value, if we complete those in less time, not only will the client be happy, but so will our bottom line. For example, creating a system and automation around document drafting is an excellent way to reduce the time spend on, say, drafting a contract. While we’ll always need to focus on the specifics for the particular client, the production of and general language used in the document can be completed with the click of a button.

Lastly, billing disputes. If I had a nickel for every lawyer I’ve heard complain about how clients are terrible people who just don’t pay, I’d have another business. What we need to realize is the client not paying isn’t the problem; it’s a symptom of a bigger problem: the billable hour. The billable hour doesn’t help anyone. Lawyers are punished for efficiency and clients have no predictability. Without certainty, the sticker shock causes a questioning of “What exactly am I paying for here?” Not what we want clients asking. Instead, if we create value, communicate it clearly, charge a predictable and reasonable price, and satisfactorily deliver, clients will have no problem paying the bill.

I am living proof of this: I have never had a problem with collections. One hundred percent of my clients have paid me one hundred percent of the time. That’s not because I am some sort of magician. I simply created a value, set a flat fee based on my hourly cost and the benefit to the client, and delivered on my promise. It’s not rocket science. It’s simply putting the client first and not wanting to lose three-quarters of my day.

How does your workday breakdown? Are you realizing and collecting on a majority of your time? Or is there room for improvement? What one change can you make today better leverage your time?