Handling Complexities of Law Firm Leverage

Admin — Wed, 30 May 2007 17:26:16 GMT

To understand how the economics of your particular law firm are changing as related to staff leverage, compute and track more than one leverage number:

Snapshot leverage: The snapshot metric consistently measures the ratio of associates to partners at the same time of year to determine the direction of movement in leverage, i.e., calendar quarter, end of year. For this purpose, the only adjustment should be to convert “part-time” associates to full-time equivalents.
Performance leverage: The performance metric converts all counts from the end of period numbers to full-time equivalents for the period. For example, a new associate hired at mid-year and in training for three months would be .25 percent of a full-time associate for the year, whereas under the snapshot measure, the associate would count in full.
Hours leverage: Hours leverage, like the snapshot metric, is a period computation. In this case, the ratio being computed is the ratio of associate hours to partner hours. This computation is self-adjusting for part-time and recently hired fee earners and also is impacted by utilization. Underutilization lowers the ratio and improved utilization increases leverage without any increase in operating cost.

Why is leverage an important management tool? Without leverage, partner income is limited to the income-producing “work” capacity of the partners. Leverage increases partner income by shifting a portion of the income-producing capacity from the work done by the partner to the work that the partner can achieve through “delegation and supervision” of others.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center: 877/377-3740, e-mail info@juris.com or go to www.Juris.com.

Too Busy to Increase Law Firm Performance

Admin — Mon, 21 May 2007 17:35:59 GMT

The answer to increased performance is to step back from the daily wars of the law practice and ask, “How can we do this smarter? How can we tie our revenue and fortunes to something more than just the partner’s billable time?” Leverage in terms of fee earners, technology, knowledge management, relationships and, yes, pricing strategies is an important part of the right answer. As for fee earner leverage, its impact on per-partner earnings is well known and understood. So, it is surprising that 75 percent of midrange law firms are not successfully implementing the strategy.

The chart shown below is one of many included in the 55-page Juris, Inc. Law Firm Economic Survey published last year. The survey reflected the financial performance of midrange-sized U.S. law firms for the year 2005. Survey results confirmed the important role that leverage plays in determining law firm partner earnings. The first quartile, the top performing 25 percent of law firms, earned more than twice the per-partner income of the next highest group.

The same survey indicated that associates in half of the surveyed firms worked less than 1400 hours. Even among the top performing 50% of firms, the average billed hours for associates ranged from 1550 to 1600. The majority of midrange law firms are both under leveraged and underutilizing the associates that they do have. The only way out of that income-limiting box is invest in improved scheduling and delegation with respect to existing non-partner resources. Partners need to give up some short term income shifting their individual effort from “billable work” to business development, recruiting, mentoring and professional development.

That is apparently a hard call for the majority of midrange firms to make. I’m reminded of a cartoon I saw years ago. A Gatling gun salesman was standing at the entrance to a medieval tent as the guard, complete with armor and spear, was saying, “I’m sorry, but the general says he is too busy fighting the war to meet with you.”

Work on this year’s annual Economic Survey is currently underway. Click here to participate and to automatically receive the results and analysis without charge.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-374, e-mail info@juris.com or go to www.Juris.com.

Make More Rain : leverage, marketing

Handling Complexities of Law Firm Leverage

Too Busy to Increase Law Firm Performance