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10 (fixable) issues that challenge law firm profitability

Even law firms that bring in significant revenue can suffer from low profitability if expenses and inefficiencies abound.

Be aware of how you handle these issues that commonly plague law firms to build and maintain the kind of profitability to keep your firm successful

Issue #1: Failure to delegate tasks

Some attorneys tend to get comfortable with being a one-person show, powering through to handle everything themselves. But once clientele begins to grow, letting go of some tasks is the only way to scale while continuing to deliver a quality experience to clients—without sacrificing efficiency.

Take a global look at all the items on your plate and consider which are truly the best use of your time. Determine if the task is billable, what level of expertise is needed, and the bandwidth of the rest of the team. Narrowing your scope to focus on tasks that are the highest and best use of your time, while allowing support staff to take care of projects that they are best equipped for, can help you maintain quality without getting overwhelmed.

Issue #2: Doing non-billable work

Your staff should not be bogged down with workflows that do not equal revenue. Workflows like scheduling appointments, client intake, and administrative work can all be significantly reduced by leveraging technology and automation. Doing so will free up your team to prioritize tasks like case management and court appearances.

On the flipside, you can maximize your billable hours by creating, testing, and implementing processes into your firm that are proven to increase productivity. Having regular team meetings is a great way to identify and resolve any bottlenecks, ensure that staff can take on the tasks that put full use to their range of skills, and free up those who are needed to handle more specialized tasks.

Issue #3: Inaccurate billing systems

Issues in this area can mean that you miss a client’s payment that would significantly increase your revenue. Billing is basically to the firm what blood is to the body—it keeps the practice alive. Your billing system should be able to consistently support your firm to keep your revenue flowing. 

An inaccurate system can cause firms to experience issues with billing errors and invoice tracking. You can reduce the risk of errors by choosing an eFiling vendor that has the ability to push costs through to your clients using your case management system.

Issue #4: Low realization rates

A low realization rate (the difference between billable time and the percentage of that time actually paid by the client) can be a huge blocker for many firms. As with any business, you incur the costs of doing business, regardless of if the client pays.

A low realization rate can be caused by problems like having serious bottlenecks in your workflows, inconsistencies and errors in billing, and firm partners writing off billable hours without sufficient consideration for profitability. Try optimizing your case management process by being as detailed as possible when logging billable time for invoicing. And create a set of guidelines for billing that can be used as a uniform protocol for the firm is recommended to help with low realization rates.

Issue #5: Lack of specialization

Taking the time to develop specialized professional skills can help you create an additional income stream for your firm. Whatever your position is within the firm, it’s important that you hone your passion for your craft. Passion can help you go further and service clients well, as well as evade burnout or professional overload.

Aligning yourself with a niche client base, where competition for clients is reduced and you can stand out from the crowd, can help you tap into a source of consistent business. Becoming the firm that specializes means you can raise your rates, as you would pay the cardiologist more for a visit than a general practitioner.

Issue #6: Failure to implement technology 

Process automation can save you from having to spend time on repetitive, tedious tasks so you can focus instead on client management and other tasks that require specialized engagement. Leverage tech tools to automate client intake and communications, eFiling, document automation, and more.

Automating your workstreams helps to reduce the element of human error that can derail a case timeline. Tasks like court filing and service of process can, depending on the tool you use, involve time-consuming manual data entry. Look for tools, like InfoTrack, that integrate with your other systems to automatically populate data and save you time.

Issue #7: Recruitment issues

Your recruiting process should be as detailed as your client management process. Your recruitment contingency plan should prepare for issues like a mishandled candidate, high retention rates, and finding sufficient litigation and support staff. Recruiting for law firms can be vastly different from  most other industries .

Use your position description as a point of attraction for top talent. When recruiting, it’s important to find attorneys that have additional skills outside of your firm’s area of practice. You can also look out for emerging areas within your realm of practice where you can better serve your current client base.

Issue #8: Holding on to bad clients

It’s simple, all business is not good business. Your firm should develop and maintain a high standard for client intake and management. Create a standard for your attorney-client relationships that always puts you in the driver’s seat. Some situations with clients may be unforeseeable. Gather data from past and current client issues to inform your action plan for handling bad clients.

Clients who frequently fail to pay their bills, or clients that require you to spend a significant amount of your time (unpaid!) collecting their payments, should be avoided. This type of client is revenue and resource-draining. Some firms choose to have new and existing clients pay in advance to solve this problem.

Issue #9: Wasteful expensing

The cost of client acquisition can be high, but identifying wasteful expensing activity in your firm is recommended if you want more gain in your profit and loss figures. Using firm management software can help you to keep track of expense accounts; that way you can get a high-level view of how money is moving at every level of your practice.

Reducing waste in your firm can help everyone across the firm to become more productive and actively involved in improving profitability. Waste is anything that does not add to the client’s experience, either directly or indirectly.

Issue #10: Negative client feedback

Reputation management for law firms can be almost as resource-consuming as case management. Creating an atmosphere where you’re checking in with your clients regularly for feedback on how to serve them better sets the tone that you’re here to serve them and their legal needs. It says that you care about how they feel about your services, whether it is negative or positive. This also increases the likelihood that they will refer you to their friends or even return if they have further legal issues.

Being open to constructive criticism keeps your firm in a growth mindset.  The fact that law firms are client-dependent makes this strategy a must for forward-thinking firms. Your case management system should have the functionality to help you streamline the process of client feedback.

Your firm’s ability to maintain and grow profitability rests on the way you handle your everyday tasks–and how well you overcome challenges. Having the right tools and processes in place can have a significant impact on your bottom line.

To learn more about how to use legal tech tools to support your firm, contact us.

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