Law Firm’s Critical Growth Metrics (“CGM”)

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How do you tell a good Lawyer from a not so good lawyer? To tell them apart, begin with the knowledge metric. Sound technical knowledge in your area of practice, is a given. In today’s challenging and complex world, sound legal knowledge should be the price of entry into the playing field, and to thrive, excel and lead, Lawyers must extend beyond superior legal knowledge to acquiring more essential business and people skills. Legal skills are essential, but are just not enough. If I were to hazard a metric in this regard, I will say 20/80. To rely on more concrete facts – Research conducted by Harvard University, the Carnegie Foundation and Stanford Research Centre on the intangibles required for career success, settled that 85% of career success comes from having well-developed soft and people skills, and only 15% of job success comes from technical skills and knowledge. While we can debate this statistics, it makes sense for any Lawyer with goals to stand out and succeed, to take immediate steps to improve his/her social and business competence – Some of these competences which are whole studies on their own include – Entrepreneurship, Emotional Quotient or EQ, Adversity Quotient, Flexibility or Adaptability Quotient, – anxiety and anger management, self-esteem, self-control, personal responsibility, teamwork, communication, critical thinking, project management, etc. In the successful lawyering pyramid, everyone knows that Technical Legal Competence – “TLA” is at the bottom of the pyramid, and Trusted Personal Advisor – “TPA” at the peak. To earn the “TPA” ribbon, requires that you pay particular attention to some critical growth metrics –

The Good Law Firm

How can you tell a “good” law firm, apart from a not so good law firm? We cannot afford to substitute assumption for evidence, when it comes to law firm quality. A prestigious industry like legal service is still largely self-regulated, and still needs well defined quality metrics. How is a law firm quality evaluated? One of the usual metrics is – Financial success like – Profit-per-partner (“PPP”). ”PPP” – measuring equity partners compensation has long been employed as one of the ideals of law firm growth metrics – PPP enables law firms to incentivise and retain equity partners (assuming they are active rainmakers) – but does ‘PPP’ directly correlate to law firm quality? Can a law firm be toxic, have a high “burn out” rate and still measure high in ”PPP”? Should we turn to the prestigious legal rating agencies for the answer. These agencies have long feasted on the ego and herd mentality of the Nigerian legal industry. Might there be some quality local law firms that are outside the radar of the rating agencies? Law firms who are focused on, and take advantage of only community-based and local marketing opportunities. I wonder. That notwithstanding, the financial or revenue metric is a critical law firm growth metric.

In 2019, the Clio Legal Trends Report defines what it means to be a “thriving’ law firm based on revenue considerations. In other words (as you could probably guess), thriving firms make more money than firms that are not thriving. However, the revelation from the report is how much more quickly growing law firms really grow, compared with their counterparts – at a rate of over 30% yearly, and at an average of 112% over five years. Conversely, shrinking firms get hit hard, with revenues falling 54% on average over five years. These research results were post Covid-19.
So, why do some Law Firms grow and others stagnate? Law firms that grow measure and act on the right firm metrics – Law firm “CGM” refers to a firm developing a culture that acts on data. Law firms accumulate a great amount of data, but the majority pay little attention or have limited access to the information. There is a need to turn these data into useful analytics. Hence, a good law firm must have a high Business Intelligence Quotient -“BIQ” – the ability to analyse data and take the required action, as a result. This helps the firm achieve its goals. Analysing, understanding and making business decisions based on data and metrics rather than instinct or basic feelings devoid of logical rationale, sets a good law firm apart from the not so good. With the help of technology, firms can unlock deep insights about their practices to improve client outcomes, maximise staff efficiency and growth. Law firms must commit to developing the discipline to leverage people, process and technology to support these metrics that improve performance. Measuring these metrics, has to be technology driven.

For instance – Utilisation rate is a significant factor in law firm growth metric, capturing how much of a law firm’s total time converts to billable time. So, it’s a metric that to a large extent, determines a law firm’s earning capacity. A 100% utilisation rate would mean that over the course of an eight-hour workday, you have billed eight hours. No one does that: According to the Clio Legal Trends Report, the average time billed in an eight-hour day, is two to five hours. Also, the Research reported that over time, growing firms exceeded steady firms by an average utilisation rate of 33% – above the industry average of 31%. Another important growth metric, is the realisation rate – the percentage of fees collected without write downs. Law firms mostly sell their time and expertise. To translate time to real money, law firms should commit to measuring these metrics. Other critical growth metrics, are the Accounts Receivable balances (the firm’s fees that remain uncollected), Work in Progress (volume of ongoing un-invoiced work), etc. If there is one metric law firms should know and be concerned about, it is the firm’s financial metric. The measure of the firm’s increase in revenue, and potential to expand over a set period. However, more important than the revenue metric is the employee or talent turnover rate, the happiness quotient and client feedback metric. Though cash is king, but, beyond cash, is nurturing the golden geese that lay the eggs – the clients and talents that produce the revenue. While we cannot examine all the metrics, let us review some:-

The Accountability Metric – Most partnerships are still sole “proprietorship” – answerable to no one – “I belong to everybody and I belong to nobody” type thing – Perhaps, a sea of shareholders and a strong board may keep some law firms more grounded? There is much that law firms can do to improve structure, processes, financial management and accountability. For instance, there are several industries that operate on a net profit margin of 1% to 2%; if this were the case for law firm’s, we probably will see a more savvy and entrepreneurial approach to law firm management. However, since the profit margins can be pretty wide for law firms – with a 20% to 50% profit margin, and with no stringent public accountability, law firms can afford the luxury of complacency, and to continue to drool in poor management practices. Though Covid-19 is a wakeup call.

The Accessibility Metric – In the past, law firms forced potential clients to work hard to find them. They could get away with it, because they were high-end service providers in an analog world. Technology and the internet, however, have democratised intakes, and clients are more empowered than ever before. Not only is your law firm competing against other law firms with client services that offer prompt access and value, but also Alternative Legal Service Providers – “ALSPs” that provide high demand legal services.

The Response Time Metric – The 2019 Clio Legal Trends Report showed 89% of law firms surveyed, indicated that they responded to client inquiries within 24 hours; but 64% of the law firms Clio called using secret shoppers never heard back from the firm they contacted, while 60% of emails did not receive a response. Clients want to be contacted back rapidly – and more important, is the quality of the response either from a Lawyer or a business support staff. 79% of clients surveyed expect a response within 24 hours. 25% want a response within a few hours, and 10% want a response within an hour. And with Covid-19, clients response time demands are likely to increase.

The Pricing Metric – How many bids or projects have you missed as a result of pricing? So, law firms have to make their pricing more understandable and more predictable for clients, who get such clarity in other industries. Maybe there’s no perfect solution to pricing, but better to provide price certainty and gain some clients, than fail to do so and lose them all. To score high on the pricing metric, be flexible – e.g. configure a flat fee; try subscription pricing; bill over a preset amount – the client pays less per hour; agree on a success fee, use retainer pricing – but be careful not to underquote due to improper assessment of workload. – etc.

The Client Development Metric – How many clients join your firm annually? The Clio Legal Trends Report conveys that 59% of clients needed a referral for a Lawyer, while 57% did their own research. However, only 16% did both (16% searched after getting a referral, 17% got a referral after searching). That means that origination is as important as referral, and if you only depend on potential referrals, you will be missing out on a world of opportunity.

Conclusion

Metrics are only as valuable as the factors they evaluate. So what counts in the legal industry? People.

A firm is as good as its people, and the quality of its client representation. A quality law firm values its people, and they know so. Its goal is to be objective, with pay and promotion. It hires (or collaborates with) legal and business experts, and gives them a meaningful seat at the firm’s management table. A quality law firm is building for the future, not just the future of its owners, but of all stakeholders with a solid succession plan.. A quality law firm recognises the importance of business process and technology – not just pay lip service to it — but makes solid investments. The quality law firm adheres to ethical standards, achieves positive client outcomes, provides good value for service, earns clients confidence, and achieves a “trusted adviser” relationship with several clients. Importantly, the quality law firm gives back to its society, and helps restore public confidence in Lawyers. This calls to mind a strong recommendation at the recently concluded Adepetun Caxton-Martins Agbor & Segun Future of Law Webinar “ACAS-LAW FLW” – Assist the Nigeria Law Faculties and Law schools to align their curriculum with the practical legal ecosystem.

A law firm that achieves high marks in these areas, is a quality firm.